Foreign Rental and Property Taxes Paid - Dedcutions or Credit?

[aashlyps]

Hi there - I file my FBAR/FinCen Form 114 every year and I also file my tax returns in India every year as an Non-resident Indian.

Me and my wife have couple of rental properties in India for which we paid the annual property taxes. These properties were not used personally but they were also not rented out, so no rental income from them. We incurred some maintenance on these properties are can we show/disclose these maintenance expenses on our tax filings this year?

Can the maintenance expenses be shown as ordinary losses on form 4797 with Passive Activity Loss?

Also, for the property taxes paid, can we use the form 1116 and can we claim for past few prior years too?

[RobertB4444 · Accepted solution]

You should be entering these rentals every year on your US return.  The losses this year are deductible for you on your US return as long as you have been reporting the gains every year when you had rent income?  You can't decide to report the losses and not the years where you earned money.  So if you haven't been reporting this rental property I recommend going back and adding it in in amended returns for every year that you have had it.

You can claim taxes that you pay in foreign countries against income.  If you have no income for the year you can still claim the foreign taxes paid but they are carried forward into the next year.

@aashlyps 

[aashlyps]

@RobertB4444 

Thank you Robert for the details about the rental losses and reporting!

I've a follow up on the foreign tax claim. You said "If you have no income for the year you can still claim the foreign taxes paid but they are carried forward into the next year."

So, did you meant that taxes paid are carried forward into the next year, so that when there's an income or when we sell the property, it can be used to offset against the income or the capital gain?

[MaryK4 · Accepted solution]

You can't claim the credit for the taxes paid for property taxes because the credit has to apply to comparable INCOME taxes in the U.S.- so you would not pay property tax on Indian property in the U.S. there would be no credit.  You would still have them deductible as passive activity losses on your Schedule E for the rental property, so they would be included and you would be able to use the losses when you dispose of the rental activity.  @aashlyps 

[aashlyps]

Thank you for the details, @MaryK4  and @RobertB4444!