Taxes on rental property abroad

Forum|Forum|3 years ago
February 19, 2023
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I have a rental property abroad for which I pay property and national income taxes.

I have entered all the relevant information under Business Income and Expenses/ Rental Properties and Royalties, including the property taxes under 'Expenses' but I am not sure whether to also include the national income taxes paid under 'Expenses' or it should rather go elsewhere.

TurboTax reports a loss (as expenses and depreciation are more than the rent itself) and zero deductions, probably because my overall income is above 150k.

Can you please help?

Thanks

TurboTax Home & Biz Windows

PattiF

The national income taxes paid should be reported on Form 1116 so that you can claim a foreign tax credit.

You can access the form to enter the foreign tax paid by following these instructions:

Open (continue) your return in TurboTax
Make sure you've already entered all your foreign income. If you still need to enter it, do that now
Select Search and search for foreign tax credit. Select the Jump to link in the search results
When you reach the screen Do You Want the Deduction or the Credit? select the option you prefer for your situation
If you select Take a Credit:
- Select Continue on the next screen, then select No to fill out Form 1116
- When you reach the screen Country Summary, select Add a Country
- Answer the questions about your foreign income, taxes, and expenses on the following screens
- When finished, you'll be taken back to the Country Summary screen. If you have income from other countries to enter, select Add a Country. Otherwise, select Done
- Answer the questions on the following screens until you reach your Foreign Tax Credit Summary. If you’re finished with this section, select Done

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MizioAuthor

Thanks very much for the explanation.

Can I still claim a tax credit even if I have a negative net income derived from the rent?

Carl11_2

Employee

TurboTax reports a loss (as expenses and depreciation are more than the rent itself)

That's expected. Rarely does long term residential rental real estate show a profit "on paper" at tax time. Typically, when you add up the deductible expenses of mortgage interest, property taxes, property insurance and depreciation, those four items alone can easily exceed the total rental income received for the tax year. Add to that other deductible expenses such as maintenance and repairs, and you're practically guaranteed to show a loss every single year.

and zero deductions, probably because my overall income is above 150k.

Yes, your income is over the threshold apparently, for your filing status. But it's not lost. The unallowed loss just gets carried over to the next year. It's common for PAL carry over losses to increase with each passing year too. Generally, you can't realize those losses until the tax year you sell the property. In any tax year your income falls below the threshold, you'll be able to deduct a maximum of $25K of those corry over losses against other "ordinary" income.

The property taxes paid are claimed on the SCH E, as there's a spot in the rental expenses section that specifically asks for "real estate taxes". Any other foreign tax paid that is not a real estate tax should be claimed outside of the SCH E under the Deductions & Credits tab.

Under that tab is a section for "Estimates and Other Taxes Paid". There is a sub-section in there for foreign taxes paid.