# Rental income



## Lalalandaustralia22 (5 mo ago)

Question regarding the reporting of rental income to the US.
Us citizen living in Australia. 
started renting out a property in June this year so I will need to report my half of the property on my irs return next year. 

I’ve always used FEIE as I only had a low amount of income to report. I’m planning to have about 12,000 in rental income so am I going to have to pay tax on that? What is this FTC that I see people use to offset capitals gains and rental income owed? So I need to have been using that in order to use it next year? 
I simply can’t afford an irs bill.I’m not working this year either as I just had a baby so my only reporting will be the rental income as I have no salary to report. 
many insight would be appreciated. I just need to prepare myself and my NRA partner for a possible huge tax bill from this ☹ 
I love America but man thisworldwide reporting really messes things up.


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## Moulard (Feb 3, 2017)

Fundamentally the way foreign tax credits work you will be able to claim a credit for Australian tax paid or accrued on the rental income to offset any US tax owed on it. If you owe more to the ATO then the IRS you can carry over the excess for up to 10 years. If you owe the IRS more than you owe the ATO you only pay the IRS the difference.

You will have to decide up front if you want to use a cash basis or an accrual basis of accounting . Cash basis is easier, but the differences in the US and Australian tax years can make it a little bit problematic as the tax liability incurred is out of phase by 6 months. But there are strategies around that I can talk about if you would like.

That said, if this is your only income, then the relatively high tax free threshold in Australia will mean you are likely to end up paying no income tax (for the 2022-23 Australian tax year the tax free threshold will be $18,200) so you would have paid or accrued no Australian tax liability.

That said, If I do a back of the envelope calculation, 12k AUD is ~ 8200 USD at the moment so you are likely to owe nothing give the standard deduction for single or married filing separately is $12550

The other thing to note, is that if half of the income belongs to your partner, then you would only be reporting that half of the income that is attributed to you. But half of nothing is still nothing, at least from the numbers you have provided.

Its worth noting that when you return to work you can use the FEIE for your wages and the FTC for the rental income. But you may actually find it is better to revoke the FEIE and use Foreign tax credits for both categories of income. Generally once your income hits about 25k AUD or thereabouts the higher tax rates in Australia are enough to offset the high tax free offset and it tends to be better to use foreign tax credits.

Is the title of the property in your name, or have you set up a Pty Ltd, or Trust as an intermediary? If the answer to that is Yes, then there are a bunch of other things you will need to consider.


Your go to pub for tax credits is Pub 514



https://www.irs.gov/pub/irs-pdf/p514.pdf



And for rental income it is Pub 527 



https://www.irs.gov/pub/irs-pdf/p527.pdf


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## Lalalandaustralia22 (5 mo ago)

Moulard said:


> Fundamentally the way foreign tax credits work you will be able to claim a credit for Australian tax paid or accrued on the rental income to offset any US tax owed on it. If you owe more to the ATO then the IRS you can carry over the excess for up to 10 years. If you owe the IRS more than you owe the ATO you only pay the IRS the difference.
> 
> You will have to decide up front if you want to use a cash basis or an accrual basis of accounting . Cash basis is easier, but the differences in the US and Australian tax years can make it a little bit problematic as the tax liability incurred is out of phase by 6 months. But there are strategies around that I can talk about if you would like.
> 
> ...


wow thanks! So detailed. 
no the property is unfortunately in my name and my nra partners name. Wewant to try and get my name off the deed in the future But I think I will always need to be on the bank loan for service purposes


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