Tax Considerations for Foreign Rental Property: Holding Structures, Reporting Rental Income and Expenses, FTCs

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, February 23, 2021

Recorded event now available

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Course Materials

This course will discuss the considerations and caveats of U.S. residents owning foreign rental property. Our seasoned panel of international tax experts will explore U.S. and foreign holding structures, residential and nonresidential rentals, and properly reporting rental income and expenses with a focus on reducing a taxpayer's overall tax burden.

Description

Many Americans work or live outside the U.S. and purchase vacation homes and residential or commercial rental property while abroad. The property's use, its ownership structure, the owner's filing status, and foreign tax credits all affect the owner's tax obligation.

Personal use of rental property evokes different tax rules than properties operated exclusively for business. Complicating the tax determination are the U.S. vacation home rules. Renting the property for more or less than 14 days and the percentage the property is used personally affect the related expenses' deductibility.

For all rental properties, tax advisers must consider the host country's tax implications and those of the U.S. The rental and sale gain or loss must be properly reported in both countries, often resulting in double taxation. International tax advisers must understand the relief provided under U.S. income tax treaties and foreign tax credits to mitigate this result. Equally important is properly reporting losses in years leading up to the disposition to preserve these deductions.

Although the 2017 tax reform eliminated the deduction for foreign real estate taxes, primary residences located overseas can qualify for the Section 121 exclusion of gains up to $250,000 if single and $500,000 if married by meeting the two out of five-year residency test. Understanding the deductions available and reporting requirements for foreign-owned real estate is critical for tax professionals working with international taxpayers.

Listen as our panel of international tax experts explains the U.S. income tax and other reporting obligations, key considerations when purchasing property abroad, and tips to minimize double and overall taxation in both countries.

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Outline

  1. Ownership structures
    1. U.S.
    2. Foreign
  2. Other considerations of owning foreign property
  3. Types of property
    1. Residential
    2. Commercial
    3. Vacation homes
  4. Rental income
  5. Sales
  6. Double taxation relief
    1. Tax treaties
    2. Foreign tax credits
  7. Foreign currency conversion
  8. Other reporting requirements

Benefits

The panel will review these and other critical issues:

  • How is foreign currency converted to U.S. dollars when reporting income and expenses?
  • What are the income tax caveats of selling foreign-owned property?
  • What rental expenses are deductible to lower a taxpayer's U.S. income tax obligation?
  • Using U.S. and typical foreign entities for acquiring and holding foreign real property
  • What are the U.S. FBAR and Form 8938 reporting obligations for foreign-owned real estate?

Faculty

Dougherty, Alison
Alison N. Dougherty, J.D., LL.M., CPA

Partner
Aronson

Ms. Dougherty specializes in U.S. international tax reporting, compliance, consulting, planning, and structuring as a...  |  Read More

Reed, Max
Max Reed, LLB, BCL

Principal
Polaris Tax Counsel

As a cross-border tax lawyer, Mr. Reed assists clients with tax problems that span the US/Canada border with a...  |  Read More

Skoczylas, Michael
Michael Skoczylas

Tax Manager, Real Estate Services Group
EisnerAmper

Mr. Skoczylas has 10 years of experience providing tax compliance and consulting services to private companies and high...  |  Read More

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