How do I enter Taxable Income from a Regular Rental Property in a Foreign Jurisdiction? This is Foreign Income but does not fit any of the four tick box categories.

[mftempleton]

My issue: 

(i) there are four check boxes on the turbotax system around foreign income: Form W-2, form 1099-MISC, statement from foreign employer; IRS Schedule K-1 - none of these apply.

(ii) Likely more importantly, if I tick none of these and click continue there are no boxes which seem to be a fit for 'rental income' from a foreign-located property.

Can this be done with turbotax?

[pk]

@mftempleton ,while I am not familiar with the screens of the on-line version and/or  what level provides step-by-step interview process for what, am quite familiar with the desktop version  of  Home & Business.

Generally, you tell TubroTax that ylou have rental income  --- this should open up questions to let you fill out the  Schedule-E -- this recognizes  rental gross income and all the  allowable expenses including depreciation of the  asset. The net profit/income  is then  transferred to form 1040.

Because this a Foreign  Property  and the income of which is being taxed by another taxing administration,  you then  ( under  Credits and Deductions ) tell TubroTax that you  Paid Foreign Taxes.  This will  open up the  Foreign  Tax Credit  form 1116 and help you fill it and compute the  credit that is available to you for the year.

TurboTax will need help in deciding which income is foreign ( you have to enter that yourself, assuming that you have other  passive incomes

Does this help ?   Is there more I  can do for you ?

[mftempleton]

@pk 

Thank you for the support, this is extremely helpful. I will pose a series of follow-ups here. I have no expectation as this is already amazing, but will be very grateful for any responses. I trust more generally that if I make a good conscience effort to get this right, putting time into reading guidance, and am transparent on what I have entered and why, I should be okay.

1. This is almost certainly implicit to your reply but I wanted to make it explicit - from briefly browsing Schedule E, I don't think there is a separate section for 'foreign' incomes, so I want to clarify that I am entering this into what is a generic Schedule for which rental income is applicable. Or maybe did I miss a tick box somewhere? One idea I have is to write a note in the 'Type of Property' part to explain the status. (I appreciate that among other things, (i) I convert everything into USD; and (ii) as you go on to point out, I enter Foreign Tax Credit elsewhere);
2. Am I okay to choose whether to calculate my earnings and expenditure on the property based on invoicing or money flows (which I think is sometimes called ‘cash accounting’)?
3. Can I use the 2023 UK Pound exchange rate listed by the IRS for my conversion of payments? https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates I note that on the above page it states: “In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item.” Perhaps I can add 5% to whatever the converted result is to be extremely confident as to not to under-report?
4. In terms of Foreign Tax Credit I have at least four  issues to resolve:
   1. The UK tax year runs from April 6 to April 5. Am I correct to assume that I need to run two calculations here: to calculate how much UK tax I incurred from this property in the period 1 Jan – 5 April and the same for April 6 – December 31? My subsequent three issues assume the answer to this is a yes;
   2. For both of those periods I may have the following to resolve. In the UK I *may* be benefitting from a UK tax free allowance for about 70% of my rental income. My idea would be to do this: (i) assume that this allowance is ‘used up’ over time through the first 70% (or whatever the precise figure) of the payments I receive over a UK tax year; (ii) then calculate tax on particular parts of my income based on the incidence as defined. In this case then this means that most all of my 1 Jan-5 April income (from the UK 2022-2023 year) will have been fully taxed; most of the 6 April – 31 Dec income (from the UK 2023-2024 year) will have been untaxed (and this latter will give me more or less no tax credit, which is fine)
   3. Depending on the above answer, I may have an issue with my 1 Jan – 5 April items: I have currently paid a flat rate of tax for that year (in the UK), but expect to be making a refund claim to the UK authorities. This will not happen prior to 15 April though. If this were to be material I would suggest that I simply make the smaller claim of the two
   4. Again, depending on the above I may have this different issue with the 6 April – 31 December portion. I have not yet done a tax return for that income, so have not paid any tax on this yet. Can I put tax I expect to pay on this? I would be extremely wary of doing this! If I don’t, can I retrospectively sort it out? (If it’s worth my while, which is unlikely, this is not much money)
5. Do I need to provide FBAR related documents/information? Can I do this with TurboTax? Any advice?
6. Do I need to offer up ‘an entity’ which I say owns the property. The reality is it is just me, I own this as a private individual.

[pk]

@mftempleton , I will try and answer your questions  by grouping  a little -- hopefully this will work:

(A)  On what items of cost  can be expensed on  Schedule-E, please   see this  Document  produced by  IRS -- it goes into great detail.:

About Publication 527, Residential Rental Property (Including Rental of Vacation Homes) | Internal R...

(B) On exchange rate  quandary ----  ideal case is to use the dollar of the day ( against UKL ) but failing that you can use monthly average  or yearly average rates -- just be consistent is using the same  source. and of course keep records to prove  your case  ( if , in that rare case that you get audited ).

(C)  On allocation  due to  different  tax year calendar :

              Recognizing that UK runs on  April 6th to the April 5th of the following year, you will have to do essentially what you are suggesting i.e.  take  the  Jan 1st through April 5th. of 2023  from UK year 22 filing and  April 6th 2023 through Dec. 31st  of 2023  from UKL tax year 2023/2024.  For expenses and income it is easy  because those are actuals..  Depreciation   will be computed by TubroTax and  so no worries there.   The burden (Foreign Taxes paid )  can only be estimated based on the year before  and included  but this would mean that you may have to file an amended return after the UK   taxes are settled.   Or you wait to file your return after settlement of UK.   Note that because you are abroad,  your tax filing date is June15th without any extensions  and October 15th with extension.  The tax payment date  ( i.e. without interest and penalties )   is till April 15th. 

(D)  On FBAR / FATCA regs:

           Yes , as an US person ( citizen/ GreenCard ), you are indeed subject to FBAR ( filed at  www.FinCen.gov -- form 114  and ONLINE ONLY ).  File by  April 15th or earlier -- it is not a tax event but non-filing when required to can attract onerous fines.

          You are also subject to FATCA regs  -- form 8938  filed  with your return.

       Here is a comparison of FBAR and FATCA requirements :

      Comparison of Form 8938 and FBAR requirements | Internal Revenue Service (irs.gov)

(E)  on the subject of entity ;

        This becomes messy as it depends on the kind of entity you operate.   But generally, if it is sole proprietor or a sole owner  Limited liability entity  ( called LLC in the USA and  Uk I think  is Ltd.), then under US laws it is a disregarded entity  for purposes of US tax  filing.   Note that  the emphasis is on "Sole owner".    In  the USA you would file a schedule-E or a schedule-C.

        For a C-corp, the entity stands on its own -- you file your return under  UK laws  ( because it was registered under UK laws ) -- you just need to recognize  the income you get from the entity.  There is a similar  set up for partnerships. 

I think I have covered all your questions.

If this has satisfied your query, please consider accepting the answer so that thread will close.

Of course you will still be able to add to it as needed. 

Is there more I can do for you ?

pk

[mftempleton]

Hi,

Thank you for these responses. Again, these were extremely useful. I follow-up queries in two areas:

1. One of the queries I had around the foreign tax credits was how to allocate the full year of UK tax to the period which overlaps with the US Tax year. Taking the example of 1 Jan – 5 April, would I just take the fraction of the year which this constitutes, (95/365), and multiply that by the full tax burden for the UK tax year?
2. I have been having a go at figuring out the question of depreciation - thank you for the link (I then also looked at p.551 linked from p.527). A few queries here:
   1. As I look to Allocate and then Adjust the Basis should I be making the start date (the date when I first identify a Basis) the date when I took ownership of the property? Should I convert the GBP value into USD using the exchange rate as of that date and do no updating of the value (beyond the ‘adjustments’, which I can convert to USD as they occur)?
   2. I am hoping to use MACRS Alternative Depreciation System (ADS). Since if you rented the property in 2017 or prior the recovery period is 40 instead of 30 years, the following could be important. When are we defining that this property was 'placed into service'? It has been rented from prior to 2023, but can it be considered ‘in service’ at a stage in the past when I was not a US Person for tax purposes? (Note that re-reading your message I get the idea that it is possible I don't need to do the MACRS calculation; that I just need to enter the relevant info. and TurboTax will calculate in the background on some basis; still, I think ideally and probably in order to get the form done I need to identify that date).

Thank you again for all this help.