oversea mortage questions

[Helen123]

Hi Team

I want to ask about the oversea mortage questions. 

1. Do I need to report my oversea mortage to Fbar or 9838 form ?

2. I assume oversea mortage is an option to report but not complusory?

3. I think we may want to report it only when the total oversea interests are above the tax allowance we can credit?

Thanks for the help

[PattiF]

No, you do not need to report the oversea mortgage on Fbar of Form 9838.

You are correct that you do not need to report the mortgage interest.

Mortgage interest on a foreign mortgage would be entered on Schedule A for itemized deductions. Most people receive the highest deduction from taking the standard deduction to reduce their taxable income. If the standard deduction is better for your situation, then you do not need to report the foreign mortgage interest.

Please see this TurboTax Tip about standard deduction vs itemized deductions.

[Helen123]

Many thanks. I assume for the oversea credit cards, there is no need to report as well, like the oversea mortage, right? 

[DaveF1006]

Overseas credit cards are a little different than mortgages because these could fall under the jurisdiction of the Bank Secrecy Act. In fact it defines what accounts that should be reported:

1. Deposit accounts; • 
2. Transaction or asset accounts ; 
3. Credit accounts, or any other extension of credit; 
4. Safety deposit box or other safekeeping services;
5. Cash management, custodian, and trust services; or • 
6. Any other type of formal, ongoing banking relationship.

Based on this, there is a FBAR reporting requirement if your Credit Card Balances are more than $10,000 at any time during the tax year.  In addition, if your credit card balances exceed  $50,000 at any time during the year, you will need to file form 8938.  You can file this in your tax return a Turbo Tax does support form 8938.  To report.

1. Open or continue your return if you're not already in it
2. Search for 8938 and select the Jump to link at the top of the search results
3. On the Foreign Financial Assets screen, select Yes, I have foreign financial assets
4. Answer yes or no to living in a foreign country, and select Continue
5. Answer yes or no to amount of foreign financial assets, and select Continue
6. Carefully follow the instructions. If you need Form 8938, we'll fill it out for you

Turbo Tax does not support the FBAR reporting but you may report this at the following website.

[Helen123]

Hey

Thanks for your quick reply. I felt confused. Do you mean the oversea credit card or the the oversea bank account related to the credit card to pay back? For the credit card, if I have 1000 dollar in balance, I think it means -1000 dollar. If I have an bank account within 10,000 dollar in it, the total rebalance is 10,000-1000=9,000. Would you mind explaining it further? I think credit card is kind of the debt I have, not the financial asset. 

Based on https://ttlc.intuit.com/community/tax-credits-deductions/discussion/do-i-need-to-report-a-foreign-ba..., for example, if I have one Amex credit card account and HSBC bank account to pay it back, I should report the HSBC bank but not the Amex credit card account. 

[DaveF1006]

Yes, I read the Turbo Tax post that you provided and I should have said that the bank that the credit card is issued by is reported on the FBAR. I based my original answer regarding credit accounts but i realized these are credit accounts issued from a bank and is not the credit card itself. This post clarified that point.

You will just report the maximum daily balance of the foreign bank account that it is associated with credit card but not the credit card activity or the available credit on the foreign credit card. 

If the average daily balance id not exceed $10,000 at any time during the year, there is not an FBAR reporting requirement. Be careful though just in case if there interest paid that may have bumped that balance over $10,000. 

@Helen123 

[Helen123]

Many thanks. I just have two things to double check.

1. The example mentions the bank account and credit card from the same organisation. If I have credit card account from company A and bank account from company B. I use the bank account to payback the credit card from company A. Based on my understanding, we only need to report the bank account from B and do not need to report the credit card account A.

2. I assume we do not need to report the credit card account A in both Fbar and form 8938.

Please correct me if my understanding is wrong. Thanks. 

[DaveF1006]

Actually it is my understanding that you will list the bank that issued the credit card.  Usually the Bank information is on a disclosure form sent to you when the credit card was received by you.  I don't know about foreign banks but I had these disclosures on my credit cards when they were sent to me. I am not sure if the foreign banks are required to issue these disclosures.

You would need to report the bank's information that the credit card is drawn on if the credit limit amount is more than $10,000 at any time during the year.

[Helen123]

Many thanks for your information. I feel a little bit confused. Because I just plan to move to US. Therefore, I may have some mistake. 

1. I think Fbar is reported based on the account not the bank or credit card company. According to the original post, I think they mean we just report the saving account rather than the credit card account via Fbar. May I ask how do you disclosure the credit card information to Fbar but not disclosure the credit card account? My assumation is that the credit card and saving bank come from two banks or companies. 

2. Or do you mean the bank or credit card company would ask you to disclourse some information to them separately and they will report it to Fbar or IRS? My friend told me they have nothing to report to IRS about their credit cards in US. 

Sorry if I confuse you or ask some very stupid questions. I just want to have better understanding on this complicated tax system. 

[DaveF1006]

This still raises an interesting question.  In researching this topic, I found the following IRS memorandum that references credit cards on pages 5 & 6. it mentions that debit cards are deposit accounts as well as secured credit cards that need to be reported on a FBAR.. It mentions though that a regular credit card might not be reportable unless you have the ability to make advance payments from the card such as from a convenience check.  If this is the case, the credit card must be reported on FBAR because it provides monetary funds to you. 

Also, if you the have the ability to make ATM withdrawals with the card, this may be a deposit account that needs to be reported on an FBAR. Credit Cards are a gray area within the FBAR reporting requirements where there is no clear guidance. This memorandum does provide some guidance to the subject.

in answer to your question, all credit cards are backed by banks. On the FBAR, you are not reporting the credit card information but you are reporting bank information that back the credit cards.

You wouldn't disclose anything to the banks or credit card companies nor would they report to FBAR or IRS. The reporting is your responsibility and not theirs.

You may not need to report a credit card though if you don't have the ability to make cash withdrawals or make cash/check payments through a convenience check.

You are correct in the respect that deposit accounts and savings accounts are different but both of these are reported on an FBAR.

@Helen123

[Helen123]

Hey

Many thanks for your digging. I just had a full read of the IRS memorandum , which is very interesting. 95% of them I agree. The only thing I am not sure is "all credit cards are backed by banks. On the FBAR, you are not reporting the credit card information but you are reporting bank information that back the credit cards."

Now, we just talk about the normal credit card, no positive balance no advanced payment as deposit card. If I have a normal credit card account A issued by credit card company B and I use the the deposit bank account C issued by bank D to pay it back. For FinCEN form 114, I just checked. They only ask you to fill in your filer info and account info (not the bank info) including account number, max value, institution name, address etc.  

1. Based on my understanding to the memo, we should just report C, which include the info from D. We do not need to report anything about A and B. I do not know whether you are in the same page. Or you mean we do not need to report A but B. If it is, may I ask how to report B individually in the FinCEN?

2. If we both agree in the question 1, I assume we only need to report C including the info of D in the 8938 as well. We do not need to report anything about A and B in the 8938.

3, if you mean reporting B to some place else, please let me know

Many thanks. Sorry to bother you again and again. I just want to understand how it really works. It really confuses me a lot

[DaveF1006]

According to my understanding about the memorandum, if it is a credit card used to make purchases and not used to make any cash withdrawals, the bank information does not need to be reported. 

As far as your examples go, I am not sure what you mean by Bank D. Are you referring to your own personal bank account. if so, this is not reported on an FBAR or 8938.

 Bank C would would be the bank that disperses cash if you need a cash withdrawal or cash advance from the card. FinCen is asking information about the bank that backs the credit card. It is not interested in information about the card or the company that issue it. Also, you are correct in stating that the 8938 is also not interested in information in your A & B examples.

Again, your credit card company is not reported.  So the answer to your third question is it is not reported anywhere.

@Helen123 

[Helen123]

Many thanks. I think now it is much clear. I think A,B,C,D may confuse you. For example, if someon has one normal Amex credit card issued by Amex and Natwest bank account issued by Natwest bank to pay back the Amex credit card, the one only reports the Natwest bank account to the Fbar and 8938, right?   

Thanks for your help again. Much appreciated. 

[DaveF1006]

Yes, Natwest Bank is the only requirement to be reported on FBAR and the 8938. Remember, it is only reported on the 8938 if the credit card limit exceeds $50K during the year and if it dispenses cash on demand as we discussed previously. 

@Helen123 

[Helen123]

Many thanks. I assume you mean if the balance in the natwest bank account is above 50k (we assume the owner only has amex credit card account and natwest deposit bank account),  the holder needs to report the natwest bank account (not Amex credit card account) to 8938. Otherwise, the holder just reports the natwest bank account (not Amex credit card account) to Fbar, right?