Moving to a foreign country and buying real estate

[ri-solano]

I am planning to move to a foreign country once i retire and buy a house for primary residency. If i buy a house big enough that I can rent part of it, do I get taxed on the rental income? if so, how is the tax calculated since the rental space will a portion of the house?

[JBedford]

Hi, @ri-solano , thanks for the question! Generally speaking, you would be taxed on your net profit from the rental activity. This would be your rental income minus your expenses. Some of your expenses will need to be prorated, if they apply to the whole house. The IRS will accept any reasonable method for doing so, the most common is simply to divide the square footage of the rental portion by the square footage of the whole house. Note: common areas do not count as "rental portion". 

Hope this helps, please let me know if this raises additional questions! 

[ri-solano]

thanks JBedford for your reply. A follow up question, if i were to create a trust or some kind of legal entity in the foreign country and register the house or property under this legal entity and have myself and a nephew as the board members of this entity, how will my taxes be calculated if I only own half of that property (my nephew owning the other half) and the property renders rental income because a portion has been rented but the property is also the primary residency for myself and my nephew?

[JBedford]

Generally speaking, you would each claim 50% of the rental income and expenses. 

[ri-solano]

on a different scenario, if i buy the real estate as my primary residency but no rental income exist, do I need to disclose the property on my tax return?

[JBedford]

No, though it's possible you might benefit from deductions on mortgage interest and property taxes, if you have enough to itemize. You also want to keep good records on how much you paid, including any expenses related to the purchase. Not important now, but may be important when you sell! Keep those records as long as you own the property. 

[ri-solano]

many tanks again JBedford, one more last question. this is a possible scenario that could well happen. if a family member in the foreign country transferred me a property, no cash involved, just a transfer of the deed and there is no mortgage, just property taxes and maintenance of the property, can i still benefit from these expenses and deduct them even though there is no purchase of RE?

[JBedford]

Yes.