# Rental Income and Capital Gains Taxes



## USExpat111 (May 23, 2015)

Sigh, so I'm still a US citizen and haven't filed my returns yet. I normally exclude all my wage income using the Foreign income exclusion, as I fall way below the threshold. I'm a bit confused about rental income and capital gains taxes however. If I have a UK property which I rent out in the UK, can or should that income be excluded by the FEIE? If my UK income was taxed extra due to the income boost from the rental property, should I try to claim a foreign tax credit on the UK tax from that extra income if my earned income which doesn't include the rental income is below the FEIE threshold? I was trying to work it out last night, and it seemed only to make sense to claim the foreign tax credit if one's total earned income exceeded the FEIE threshold. Further, if I normally due not owe US tax on the rental income due to the losses from depreciation and other expenses, can I claim a foreign tax credit on the income I paid to the UK due to rental income which is treated differently in the UK?

Also, I'm considering selling this rental property, in which case I would owe UK taxes. Could I use the foreign tax credit agains the UK capital gains taxes in that case, or is there any treaty with the US which might make this unnecessary?

Thx


----------



## Bevdeforges (Nov 16, 2007)

The FEIE applies only to earned income (i.e. salary and salary-like earnings from a personal business). Neither the rental income nor the capital gains are covered by the FEIE, so you almost have to use the FTC there to escape double taxation.

And the instructions for form 1116 should explain how you determine the portion of your UK taxes that apply to your "passive" income so that you can claim your UK taxes against any US tax liability you incur.
Cheers,
Bev


----------



## USExpat111 (May 23, 2015)

Yes, thanks, Bev. It was actually reading the instructions to Form 1116 which confused me more as to what was covered lol. For example, I manage my own rental property- does that mean it's general earned income rather than passive? What do you mean by salary-like earnings from a personal business? In the UK, I actually have to file Self Employment returns due to the extra income from the rental property.

When I was looking at the examples in the 1116 instructions, the tax credits also seemed to benefit only people whose earned income exceeded the FEIE limit, so I'm not sure it's worthwhile for me to claim a foreign tax credit even if I paid foreign taxes since my wages fall far below the max. However, I understand the tax credits can be carried forward- perhaps against capital gains taxes if I sell the property at some point?


----------



## Bevdeforges (Nov 16, 2007)

Unfortunately I don't have much experience with the 1116 forms. (Well, on second thought, maybe "fortunately" - but never mind...)

I do know that you are supposed to file separate 1116 forms for your earned income and for your "passive" income. It's entirely possible to file using the FEIE for your earned income and a 1116 that relates only to your "passive" income. Also, that a single rental property does not normally make you a professional rental agent (at least not under US tax law). But at this point, I have to appeal to those better versed in the foreign tax credit and rental income for assistance.
Cheers,
Bev


----------



## USExpat111 (May 23, 2015)

I'm disappointed, Bev, I thought you were the expert in all matters of US tax!


----------

