@mpsingh08 , having gone through @Carl reply I realized that I had not closed the loop on offsetting US income with losses from a foreign endeavor.
I think you are talking about Passive Activity Loss limitation. Assuming that you are not in the business of realestate i.e. the rental properties that you own qualify as passive activity, you indeed will be eligible for aggregating incomes ( positive and negative ) all passive activities and recognize losses up to 25,000 ( filing status and AGI limitations apply )-- thus the net effect of losses from your Spanish properties against your world income from all sources would be applicable and entered by TurboTax. This will take place once you enter all the details of rental properties on Schedule -E ( irrespective of where the property is located ). Note that there is no linkage between your income returns filed in the source countries ( in your case UK and Spain ) i.e. each country taxes incomes under its rules/laws.
Where the same income is taxed by two jurisdictions ( e.g. US and Spain on rental income ), treaty based amelioration of the tax ( double taxation ) is achieved by filing a foreign tax credit -- form 1116. Note here that while US will recognize the total foreign tax dollar for dollar, the actual allowable amount of credit for the year is based on a ratio of foreign income in the source country to your world income being taxed by the USA. This computation is a bit complicated but TurboTax does this for you -- shows up as a foreign tax Credit on form 1040 schedules. The unallowed portion of the foreign tax credit can be carried back one year or carried forward for 10 years , as long as there is foreign income -- again TurboTax will do all this for you.
Also, all taxes, licenses, etc etc levied on the property is correctly reported on Schedule E ( whether the property is foreign or domestic ). However, any income taxes ( and only income based taxes ) are correctly entered ONLY on form 1116 for foreign tax credit. -- see my explanations above
Does this answer your query ?
pk
