We have rental property abroad and are paying income tax for the rental income to the foreign country. We can claim foreign tax credit for that so all good there. However, I am required to also depreciate the rental property over 40 years. Let's say I have $5000 rental income and $500 expenses to deduct. Let's also say I will make $1500 depreciation per year - I will then end up with $3000($5000-$500-$1500) rental profit on paper.
I have already paid the income taxes to foreign country so reducing the rental income in US taxation does not help me. However, when I sell the property I will be taxed more as I made depreciations on it. Doesn't sound right?
What is the right way of reporting this so that I can carry forward the depreciation benefit or otherwise make it "fair"?
