My wife and I are planning on buying a house for my wife's mom in Denmark. She'll be paying rents to us (say ~1,000 dollars a month). I was wondering what I need to do with taxes. I'm not sure if we're getting a mortgage through a bank in Denmark, or a home equity loan in the US. If we get a mortgage in Denmark, the money will never come to the US (the rent goes straight to the mortgage payment in Denmark). However, if we get a home equity loan here, then we'd move the money to pay the monthly payment in the US. Either way, we plan to use our savings (~50k) as a down payment for the house.
As a US citizen or resident you are required to report world wide income. Therefore you will report this rental property the same way you would report US rental property.
For more detail:
Where do I report income from a rental property I own in Europe
One caveat: The US has some strict reporting requirements regarding foreign bank accounts. YOu may be best served keeping any foreign account under $10k.
Hello JustinH2
Thank you for your question.
As a US Citizen / Resident, no matter where you have rental earnings, these will need to be reported on your taxes. It does matter whether the money comes to USA or goes towards paying a mortgage in Denmark.
Please refer to Rental Real Estate and Taxes article to learn more about this subject.
When renting to family you need to make sure that you are renting it at fair rental value. If you not renting at fair rental value or renting 'below market rent' this is considered personal use and you can deduct your rental expenses only up to the amount of your rental income.
If you have any further / specific question, please do let us know.
Thank You