oversea flat tax enquiry

[Helen123]

Hi Team

My husband and I own two small flats in the UK.  I just moved to US and my husband stays in the UK. We own two small flats directly. I fill in the tax separatedly and my husband doesnt have any tax relationship in the US. I have a few questions.  

1. Because my husband is in the UK and I will visit him frequently. We do not rent them out temporialry. I assume I do not need to report anything about these two flats to IRS, including Fbar, 8938. Is it correct?

2. When my husband moves to US, I guess we may rent them out. If we plan to rent them out, I assume we need to include it to 1040. I think I do not need to report it to Fbar and 8938 as well. Is it correct?

3. May I ask how to calculate the profit? I assume (rent income - service charge fees from the building - ground rent from the landlord - renting agency fees - mortage interests)/2 for each of us. Does my deductable items correct or anything more? And I assume I can also claim back the tax paid to UK government? 

Thanks. 

[Vanessa A]

First, what is your residency status?  If you are a non-resident, then you would need to file through Sprintax.com as TurboTax does not handle the 1040-NR.  

If you are a US Resident for tax purposes then the following answers apply

1. Because my husband is in the UK and I will visit him frequently. We do not rent them out temporialry. I assume I do not need to report anything about these two flats to IRS, including Fbar, 8938. Is it correct?   Correct.  You do not need to report real estate personally owned to the IRS

2. When my husband moves to US, I guess we may rent them out. If we plan to rent them out, I assume we need to include it to 1040. I think I do not need to report it to Fbar and 8938 as well. Is it correct? Correct, you still would not need to report it on a FBAR and 8939, however, if you are collecting the rent in a foreign account, you may need to report that on the FBAR if at any time your total foreign accounts have a balance greater than $10,000.  Also, since your husband is still there, you may need to file a FBAR now, if there are open bank accounts now. 

3. May I ask how to calculate the profit? I assume (rent income - service charge fees from the building - ground rent from the landlord - renting agency fees - mortage interests)/2 for each of us.  Yes, you would report all income and then expenses such as service charges, rent and mortgage interest on your return.  If you are filing a joint return, you would report it all as one lump sum.  If you are filing separate returns and both other it, then you would split it based on ownership percentages on your individual returns.  Does my deductable items correct or anything more? If you pay utilities for the tenant or have to make any repairs, you would also be able to deduct them. And I assume I can also claim back the tax paid to UK government? Generally, yes, property taxes imposed on the rental property would be tax deductible. If you file a return to report the income in the UK, then yes, you can also claim a credit for foreign taxes paid. 

[Helen123]

Hi 

Many thanks.

1. I assume if it is non-resident alien, anyway, no oversea real estate and bank account needs to be reported to IRS. Nothing to worry about.

2. For question 2, I assume you mean no matter when I do not need to report the oversea real estate to Fbar and 8938. If I have oversea bank account, I need to report it to Fbar if it is above 10,000. So, there are no relationship between oversea bank account and the oversea real estate.

[ErnieS0]

You, you would not need to report personal foreign real estate. IRS says:

Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938.  For example, a personal residence or a rental property does not have to be reported.

And you are exempt from FBAR unless you are a U.S. resident for tax purposes and your foreign account balance reaches $10,000.

See Basic Questions and Answers on Form 8938.

[Helen123]

gotcha, thx

[Helen123]

@ErnieS0  

Hi Ernie,  I hope you are well. three quick questions.

1. Based on what you mentioned, oversea real estates are not needed to be reported. Therefore, when we say foregian account balance reaches 10 k USD (Fbar) or 50k USD (8938), I assume it also excludes the value of oversea real estates, right?

2. In terms of oversea mortage, I assume I do not need to report it, right? If my mortage interests cost is above the standard deduction (at moment not), I can choose to report my oversea mortage. But if I do not want to report it, I do not need to. Is it correct? 

3. In the future, if I want to rent out my oversea flat after my husband comes in USA, can I only claim the mortage cost after it is above the standard deduction or I can enjoy both standard deduction and the mortage cost as the expense if I rent it out? 

Thanks,

Helen

[Helen123]

@Anonymous_ hi, can you help me suggest any expert to answer the question I asked Ernie?

Thanks,

Helen

[Anonymous_]

@pk?

[pk]

@Helen123 , please could you wait  till tomorrow ( I am in PST / California  time zone )  so I can digest this whole thread  and go from there ?  Please 

pk

[Helen123]

many thanks. it is not rush

Helen

[pk]

@Helen123 ,

1.Based on what you mentioned, oversea real estates are not needed to be reported. Therefore, when we say foregian account balance reaches 10 k USD (Fbar) or 50k USD (8938), I assume it also excludes the value of oversea real estates, right?

For both FBAR and FATCA there is no recognition / reporting requirement  for  immoveable asset ( generally capital asset ). Thus when computing  for FBAR it is ONLY cash ( at anytime during the tax year ) and for      FATC A  ( form 8938 it  is generally stocks /bond , cash/  savings accounts /  investment accounts /  tax preferred accounts like pension  accounts etc. etc. -- anything  that is liquid or semi liquid  ) .  Note that Real Estate assets are NOT included in FATCA.

2. In terms of oversea mortage, I assume I do not need to report it, right? If my mortage interests cost is above the standard deduction (at moment not), I can choose to report my oversea mortage. But if I do not want to report it, I do not need to. Is it correct? 

For Personal Real Estate there are two different kind ---- main  residence and 2nd. home .   The mortgages on each is recognized as a deduction if you itemize  ( ilo  standard deduction ) but the current law has a limit established  based  a maximum amount of  loan debt.  If you use standard deduction ( Turbo will Ask you for all the details  about  the constituents of itemized deduction   and suggest the best path for you ), you cannot use any other deduction  except for  charitable contributions to 501(c) entities ( with receipt ).  But you can always choose top ignore  the itemized deduction entries  and let Standard deduction be the choice.  

3. In the future, if I want to rent out my oversea flat after my husband comes in USA, can I only claim the mortage cost after it is above the standard deduction or I can enjoy both standard deduction and the mortage cost as the expense if I rent it out? 

 When ,and if ,  you choose to rent out your props . in the UK, these will then be  categorized as "income property " and must be rented at Fair Market Value/ Rent.  As a US person, you must declare your world income  to the USA and be taxed.  Thus your rental income ( reported on Schedule-E )  recognizes , gross income, all the  allowable  ( under US laws  and which may be different from the HM laws ) expenses,  recognize depreciation, property taxes, ground rent etc. .  Any gain  ( income LESS expenses ) is taxed as ordinary income  ( your marginal tax rate ).  Before you do this  though I would highly recommend you to spend some time perusing through  the below  pubs from the IRS -->

p527.pdf (irs.gov)

p519.pdf (irs.gov)

i1040se.pdf (irs.gov)

I hope this  gives you enough  to prepare for the 2024 tax filing season

pk

[Helen123]

thanks. I will have a look. If I rent property out in the future, is deluxe enough or I need to upgrde the turbotax?

[pk]

@Helen123 , 

 first , I think all the   desktop versions have all the forms supported  by TurboTax.

Second, given that you will sooner or later have  your husband ( a Non Resident Alien for  a period )  and sometimes the need for  amended returns,  I am personally biased towards  " Home and Business " and  either in CD or download  form.   This covers  all possibilities , all the forms, and best of all everything stays  in my machine -- so I can go back to an earlier if  need to  ( without Turbo Tax ) and I can shuttle between  forms mode and step-by-step.

Third , I am hoping you are talking about 2024 tax season ( filling 2023 returns ) .

  It is a little bit more expensive  but is a good buy  ( IMHO ).

If you go to TurboTax site  it gives a com parison list of the all the different versions available and cost thereof.

pk

[Helen123]

got it, thanks