TaxTips: Rental Income and Taxation | What You Need to Know?

Any U.S. citizen or resident alien gets taxed on their worldwide income, regardless of whether it was earned domestically or abroad. If you own a rental property in a foreign country, you must fulfill a few additional requirements while filing your U.S. tax return. 

Let's explore what you need to know about the taxation of real estate rental income, especially foreign real estate rental revenue. 

 

Key Points 

 

For a thorough understanding of the tax consequences of your rental property under U.S. law, you must understand the following taxation factors. 

1. The property's ownership – how do you acquire it? How you hold title to the real estate property may affect the tax calculation of your rental income and capital gains tax at the time of sale. If you acquired the property through a company or a trust, you must file additional IRS papers. If you inherit property, you may be required to complete form 3520. Sure Financial and Tax Services LLC can advise you on this matter. 

2. Nature of Rental Income - What kind of income does it represent? Your rental income from real property may be taxed or exempt. Your rental loss may or may not be deductible. All of these factors depend on the classification of rental real estate and rental income category. Consult with us for assistance with this. You must distinguish between revenue from personal property, income from investment property, and income from commercial real estate. 

3. Foreign currency conversion rate: When the real estate is located outside the United States, you must examine and account for whether or not the rental activity qualifies as a Qualified Business Unit for currency conversion purposes. This determination resulted in numerous taxing factors. Sure Financials and Tax Services, LLC can provide assistance with this. 

4. Depreciation: In order to determine rental income, you must deduct depreciation on the building in addition to other expenses. Depreciation calculations vary from country to country. Foreign property is depreciated differently when it comes to United States taxes. Cost of acquisition, cost of improvement, and authorized and permissible depreciation play a significant role in determining depreciation. The depreciation claimed as a tax deduction today may be taxable income at the time of real estate sale. 

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6. A double taxation treaty with a foreign government stipulates that every U.S. citizen or resident alien gets taxed on their worldwide income, regardless of where it was earned. Consult Publication 901 for information on double taxation treaties. Form 8833, Treaty-Based Return Position Disclosure, may be necessary in certain circumstances. Regarding Section... This is a complex issue that requires the assistance of a tax expert. 

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8. Credit for foreign taxes, if any: Every nation has its unique tax rules and computation method. If your rental property is located in a foreign country, you may be required to pay taxes on the rental real estate revenue to that country. Since U.S. citizens and permanent residents are taxed on their worldwide income, foreign rental income is also taxed in the United States. However, the good news is that you can claim the foreign tax you paid as a deduction or credit, with the credit being more advantageous. For more information, consult Form 1116 - About Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) or contact Sure Financials and Tax Services LLC. 

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10. Expenses Related to Rental Activity: During your rental period, you may have incurred expenses, paid tax and interest, and incurred other costs. For permitted expenses, consult Schedule E - About Schedule E (Form 1040), Supplemental Income and Loss. 

Regardless of your actions, you must keep records to verify your claim. Providing supporting paperwork is required if you are claiming cost-of-improvement depreciation. 

  

At the time of the sale of the rental property, you are required to retain records of the purchase price, any upgrades, depreciation claimed in the past, and rental losses that were not permitted in the past. 

Refer https://surefintaxsvs.blogspot.com/2022/05/irs-record-keeping-requirement.html for IRS record keeping requirement. 

Tax Tips: How To Make IRS Payment?

Are you prepared to file your federal income tax return, or have you already done so? If you owe taxes, remember to pay by Tax Day. And you are not required to file and pay simultaneously. The IRS provides the following payment options for taxpayers' convenience:

Pay by cash. 

Historically, you could not pay your federal income tax obligation with cash. Currently, however, the Internal Revenue Service (IRS) allows you to pay your taxes via PayNearMe.

You must visit the Official Payments page and follow the steps to make a payment. The IRS will then provide you a code that you can take to a participating merchant, where the cashier will scan the code in order for you to pay. Typically, the entire procedure takes between five and seven working days. It costs $3.99 to utilize the PayNearMe system, and the maximum payment amount is $1,000.

Official Payment Page: https://www.officialpayments.com/fed/index.jsp

Pay by check or money order

Even if you e-file, you can still pay using a check or money order. Make your check or money order for the whole amount payable to "United States Treasury" Write "XXXX (Tax Year) Form 1040" and your Social Security Number on the memo line (if you are filing a joint return, write the SSN shown first on your tax return on the memo line). Ensure that your name, address, and daytime phone number are printed on the check; this information may already be present.

Include payment with Form 1040-V, Payment Voucher (downloads as a PDF) and mail payment along with Form 1040-V to the state-specific address:

You can pay by check or money order even if you e-file. To pay what you owe, make your check or money order payable to "United States Treasury" for the full amount due. Write "XXXX (Tax Year) Form 1040" on the memo line together with your Social Security Number (if you are filing a joint return, write the SSN shown first on your tax return on the memo line). Make sure that your name, address, daytime phone number are on the check; that info may already be printed on your check. 

Include payment together with Form 1040-V, Payment Voucher (downloads as a pdf) and mail the payment along with your form 1040-V to the address that corresponds to the state where you live:

 

Do not write a check if you lack the money to cover it. There is a penalty for writing a bad check to the IRS ($25 or 2% of the check, whichever is more) and no one will be duped. It is not valuable.

Remember that the Internal Revenue Service (IRS) no longer accepts checks in excess of $100 million.

Direct Pay:

Taxes can be paid straight from a checking or savings account. To make a payment, visit the Direct Pay webpage. You will select (1) the tax form, (2) the reason for payment, and (3) the tax year:

You must verify your identification by submitting your filing status from your most recent tax return as well as your name, SSN, date of birth, and address. Enter the payment amount, due date, and bank account details. Once you reach the final page, you are finished. After payments are completed, the IRS does not retain your bank account information, and there is no fee to use the system.

You can schedule a payment or make a payment on the same day; however, IRS Direct Pay will only accept two payments within 24 hours. Note that each payment must be less than $10 million if you owe a lot.

Checkout how to guide for reference.

Pay by wire. 

Consider a wire transfer from your bank or financial institution on the same day. Contact your bank or financial institution for details, including fees and deadlines - not the IRS. To make a payment, download the Same-Day Payment Worksheet and fill it out prior to making the wire transfer.

Pay by Electronic Funds Withdrawal.

Electronic Funds Withdrawal (EFW) is a method for making direct debit payments from a bank account. The Internal Revenue Service does not charge a fee to use EFW, but your financial institution may (check first to avoid a last-minute panic). You must have access to your bank's routing and account numbers.

Pay by Debit or With Credit Card

You can clear your bill with a debit or credit card. Visa, MasterCard, Discover, and American Express are accepted by the majority of the IRS-approved payment processors.

In general, there is no restriction on the amount that can be paid; however, you are limited to two credit card payments per year for the same individual tax obligation. Payments with balances exceeding $100,000 may necessitate collaboration with your credit card or debit card issuer.

The fees charged by third-party credit and debit card providers may vary by provider, card type, and payment amount. Debit card costs range from $2.00 to $3.95, whilst credit card fees range from 1.87 percent to 1.99 percent (minimum fees apply). The convenience fee paid to your provider will be labeled "Tax Payment Convenience Fee" or a similar phrase, while the tax payment will be labeled "United States Treasury Tax Payment."

Integrated IRS e-file and e-pay service providers are subject to separate regulations (and fees).

Use the Electronic Federal Tax Payment System (EFTPS)

To make a payment via telephone using EFTPS, dial 1.800.555.3453. Call 1.800.733.4829 if you are deaf, hard of hearing, or have a speech disability and have access to TTY/TDD equipment. To make an online payment with EFTPS, log in (https://www.eftps.gov/eftps/login/loginInitial) and follow the instructions. You may arrange your payment by 8:00 p.m. EDT at least one calendar day prior to the due date. It is important to remember that your tax payment is still due even if the website is unavailable, so be prepared.

Enrollment is required to utilize EFTPS. After the IRS verifies your information, you will get a personal identification number (PIN) via mail within five to seven business days. Between the Internal Revenue Service and the United States Postal Service, you will need patience.

Also, as fraudsters intensify their attempts to steal your personal and financial information, remember that EFTPS will never approach you by email. If you receive an email purporting to be from the EFTPS tax payment service or from an unknown sender claiming to have information about EFTPS payments, please forward the email to phishing@irs.gov or contact the Treasury Inspector General for Tax Administration at 1-800-366-4484.

Several additional payment tips: 

1. Plan ahead. If you pay by mail, your money is typically considered paid as of the postmark date. For all other payment methods, your money is deemed received when it is accepted, not when it is initiated. Ensure that electronic payments are scheduled in advance to avoid late fees and penalties. And keep in mind that accidents might occur, so allow yourself some extra time.
2. These options are applicable if you are filing a tax return or requesting an extension. Remember that an extension only extends the filing deadline, not the payment deadline. If you owe tax, you must include a payment with your extension request.
3. Paying late? Pay anyhow. It is preferable to pay late over not at all. If you will be late, do not let it deter you.
4. Be wise. No of how you choose to pay, you should never mail cash.
5. Be mindful of your clicks. If you are uncertain about the legitimacy of your payment method, you can always return to the IRS website. Use only IRS-approved techniques and search for safe sites (typically characterized by https:). Remember that iTunes and other gift cards cannot be used to pay taxes (more here). 
6. Employ the correct currency. You must pay in U.S. dollars even if you're paying taxes on international income.
7. You are not required to send payment if the amount you owe is less than $1.

Tax Tips: Tax Law Changes for Tax Year 2022

 It's time to start planning for 2022's return now that the tax filing season for the 2021 tax year is complete. After all, you may be able to save more money by doing more tax planning. However, effective tax preparation necessitates being aware of what has changed and been added since the previous year. For the 2022 tax year, there are many modifications and revisions to the tax code that informed taxpayers should be aware of.
We've compiled a list of the most significant tax law amendments and modifications for 2022 to assist you (some related items are grouped together).
Utilize this knowledge right away to keep more of your hard-earned money when it comes time to file your 2022 tax return the following year.

• Child Tax Credit
• Child and Dependent Care Credit
• Earned Income Tax Credit
• Recovery Rebate Credit
• Tax Bracket
• Capital Gain
• Standard Deduction
• Form 1099-K
• Charitable Gift Deduction
• Retirement Saving
• Teacher Expenses
• Keddie Tax
• Adoption of a Child
• Education Bond
• Parking and Transportation Benefits
• Americans Working Abroad
• Payroll Taxes
• Standard Mileage Rates
• Long-Term Care Insurance Premiums
• Health Savings Accounts (HSAs)
• Flexible Spending Accounts (FSAs)
• Alternative Minimum Tax (AMT)
• Tax "Extenders"
• Self-Employed People
• Estate & Gift Taxes

Download a copy of these changes

Dirvorce, Separation and Taxation

The change in a person's relationship status, such as a legal separation or divorce, has an impact on their tax situation. For tax reasons, a couple is considered married until they receive a final decree of divorce or separate maintenance.

• When a person is divorced or separated from their spouse, they usually need to file a new Form W-4 with their employer to claim the proper withholding.

• Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes.

• For federal tax reasons, alimony or separate maintenance payments made to a spouse or former spouse under a divorce decree, a separate maintenance decree, or a signed separation agreement may be considered alimony or separate maintenance payments.

• A parent who has custody of a child can generally claim that child on their tax return. If parents share custody 50/50 but don't file a joint return, they'll have to pick who gets to claim the child.

• When property is transferred between couples, or between former spouses if the transfer is due to a divorce, there is usually no acknowledged gain or loss. It's possible that the transaction will need to be reported on a gift tax return.

• Divorcing couples who are still married at the end of the year are treated as married for the purposes of determining their filing status for the year. The IRS.gov tool What Is My Filing Status can assist users in determining which filing status is appropriate for their scenario.