Rental depriciation

[foreignnational1]

Hi,

I am a foreign national beginning work after my studies in the US. Before I came to the US, my dad inherited a property in 2005 which he then rebuilt into apartments and transferred one of the apartments in my name in 2016 (I came to the US in 2017 as a student). I earn rental income and since I was a non resident for tax purposes I was not required to report it to the IRS. However, beginning next year I will become a resident alien for tax purposes. First, I want to know how can I report my rental income (it does not exceed $10,000 per year)?

Second, can I calculate the depreciation of the property to offset the taxes owed on rental income? How do I calculate the value since it was not something that we bought with money (neither me nor my dad)? When do I start calculating depreciation on my apartment (when I start reporting it in 2021 or when I first got it in 2016)?

[Carl]

my dad inherited a property in 2005

Is this property in the U.S.? This matters big time for "all" tax reporting for "all" years you owned it.

Is your dad a U.S. citizen or legal alien in the U.S. with an ITIN or SSN?

Your cost basis on the property is your dad's cost basis. That would be the fair market value of the property on the day the person your dad inherited it from passed away. (not the day it was titled to your dad.) When your dad gifted you the property, you were gifted more than just the property itself.

You were also gifted his cost basis. For you, that cost basis has to be further reduced by all depreciation your dad may have already taken on the property. If the property was rented at any time while your dad had it, and he didn't take depreciation, then you are still required to reduce the cost basis by the depreciation he "should" have taken.

transferred one of the apartments in my name in 2016 (I came to the US in 2017 as a student). I earn rental income and since I was a non resident for tax purposes I was not required to report it to the IRS.

is the rental property in the U.S.? This matters for tax year 2016 U.S. income tax reporting.

Do you have an SSN or ITIN? One or the other is "required" in order for you to file a standard U.S. citizen or U.S. resident alien tax return.

[foreignnational1]

Hi Carl,

Thank you for the detailed response. So the property is outside the US and my dad is a citizen of that country (has no ties to the US or SSN or any tax - he has never been to the US). This is the reason why I was not required to report it until now since I am a non resident alien and it is earnings outside the US. Does that change anything? 

[foreignnational1]

I do have SSN and been filing taxes for a part time job I have had during my time as a student.

[Carl]

So you'll report the rental income/expenses in the SCH E section with nothing special really. Just keep in mind you are filing a U.S. Resident Alien return (the standard 1040). So you will identify the property as foreign rental real estate. This matters for depreciation.

Your cost basis will be the biggest thing to deal with. I don't konw how you're going to determine it's fair market value on the date the original owner passed away before your father inherited it.

When asked how you acquired the property, indicate it was a gift. (since that's what it was from your dad.)

Since 2019 will be the first year you are required to report it on a U.S. tax return, your "in service" date should be 1/1/2019. Depreciation will start on that date. Since it's a foreign rental property from a U.S. perspective, it gets depreciated over 30 years instead of the standard 27.5 years for local domestic rental property. So make sure you correctly identify it as a foreign rental.

When working through the property you'll eventually get to a section in the rental expenses section asking about taxes you paid to include real estate taxes. You "will" include taxes paid to any foreign tax authorities in this amount.

If you have more questions, (and I"m confident you will) then please ask.

[foreignnational1]

That was very helpful Carl - thank you so much. Just to double check I understand this correctly - I report the cost basis value on the date that my dad inherited the property but start calculating depreciation from the first date of the tax year that I start reporting it on a US tax return (since I was a student until now I start being taxed as a resident alien from 2021 - so I am assuming I start calculating depreciation from 1/1/2021)?