# US rental property tax



## Kal (Oct 22, 2010)

Hello, 

I'm a US citizen working in the UAE since 4 years. I claim my foreign income tax exclusion when i file my tax returns every year. This year i have new issues i need help with. 



1- My annual income this year has increased beyond the foreign income exclusion limit. How do i calculate how much tax i should pay.

2- I bought a real state property in Florida. I am renting it out and its my only income back home in the states. How can i calculate how much tax i should pay on the rental income? 

Thanks


----------



## Bevdeforges (Nov 16, 2007)

Hi and welcome to the forum.

1. You basically follow the forms. Form 2555 has you calculate your exclusion, which you then subtract from your declared gross income on the lines (on form 1040) they tell you to use. Carry on to the 2nd page of your 1040 and just keep on following the instructions.

2. Real property income is not earned income, so you just declare it and pay taxes on it just like if you were back home.

In essence, you accumulate your gross income on the front page of the form 1040, and you subtract your exclusion amounts (overseas earned income exclusion and housing exclusion, if applicable) to calculate your AGI. Then turn the page and continue on.

The one "tricky" thing is that, if you itemize your deductions, you have to apportion your deductions between your excluded income and your taxable income. Take a look at Chapter 5 (page 30 in the 2009 version of pub. 54) for details. 

To vastly simplify it, say your gross income (all from salary earned overseas) was $100,000 and the exclusion max was $90,000. That leaves you $10,000 in AGI. Now, let's say you have $12,000 in itemized deductions. You can only deduct $1200 from the AGI (because your AGI is 10% of your gross income before the exclusion). There are a few wrinkles you have to deal with, but that's the basic principle.
Cheers,
Bev


----------



## Vetteguy (Jan 3, 2010)

Kal said:


> Hello,
> 
> I'm a US citizen working in the UAE since 4 years. I claim my foreign income tax exclusion when i file my tax returns every year. This year i have new issues i need help with.
> 
> ...


I do hope you are not claiming your allowances such as: Housing, Vehicle, Utilities,
etc. etc. in your total income because only your base salary is taxable not your expense allowances.


----------



## bigbang70 (Apr 9, 2010)

I've said this before, but it still bothers me why The US government thinks we owe them to go and work in another country...sound like international slavery..... Join the Libertarian Party and live free


----------



## Bevdeforges (Nov 16, 2007)

Vetteguy said:


> I do hope you are not claiming your allowances such as: Housing, Vehicle, Utilities,
> etc. etc. in your total income because only your base salary is taxable not your expense allowances.


Um, that's not really true under US tax law... but hey, you play the game, you take your chances. All expense allowances are supposed to be reported as part of your "worldwide income" and that includes "compensation in kind" - like the use of a company car, or employer-paid rent.
Cheers,
Bev


----------



## Bevdeforges (Nov 16, 2007)

bigbang70 said:


> I've said this before, but it still bothers me why The US government thinks we owe them to go and work in another country...sound like international slavery..... Join the Libertarian Party and live free


You could always just renounce your US citizenship at the local US consulate. (Though that could just subject you to the US Expatriation Tax, but only for a limited time.)
Cheers,
Bev


----------



## bigbang70 (Apr 9, 2010)

Or you could just not pay, and claim the Rangle defense!!!!!!!


----------



## Jynxgirl (Nov 27, 2009)

Bevdeforges said:


> Um, that's not really true under US tax law... but hey, you play the game, you take your chances. All expense allowances are supposed to be reported as part of your "worldwide income" and that includes "compensation in kind" - like the use of a company car, or employer-paid rent.
> Cheers,
> Bev


I think alot of expats from the usa have the same misconception... Hate to be audited and come back owing a large amount of back taxes so I dont take the chance. IRs = :boxing:


----------



## Vetteguy (Jan 3, 2010)

Jynxgirl said:


> I think alot of expats from the usa have the same misconception... Hate to be audited and come back owing a large amount of back taxes so I dont take the chance. IRs = :boxing:


I have been in the Middle East for 3 years now and have been using the same CPA and according to her if it is not "Salary" it's not taxable....I know it may be a loop-hole but it is in fact legal....So technically only your "Salary" is taxable..If you guys choose to combine all allowances into your salary and pay taxes on all of it you can but don't have too is all I'm saying. I pay only on my salary....


----------



## Jynxgirl (Nov 27, 2009)

Vetteguy said:


> I have been in the Middle East for 3 years now and have been using the same CPA and according to her if it is not "Salary" it's not taxable....I know it may be a loop-hole but it is in fact legal....So technically only your "Salary" is taxable..If you guys choose to combine all allowances into your salary and pay taxes on all of it you can but don't have too is all I'm saying. I pay only on my salary....


Your cpa will not be in trouble if you ever get audited, you will


----------



## bigbang70 (Apr 9, 2010)

If you ask me, any expenses you have here can be written off. but I wouldn't claim anything other than salary


----------



## Andrew James (Nov 6, 2010)

Jynxgirl said:


> Your cpa will not be in trouble if you ever get audited, you will



It would be nice if that was true but the IRS considers anything you receive in cash, or are given as non-cash benefits, to be taxable - any they know that expats get such allowances.

Best regards,

Andrew


----------



## bigbang70 (Apr 9, 2010)

Liberty is when the government fears the people, tyranny is when the people fear the government


----------



## amik (Nov 3, 2010)

Jynxgirl said:


> I think alot of expats from the usa have the same misconception... Hate to be audited and come back owing a large amount of back taxes so I dont take the chance. IRs = :boxing:


I was also under the impression that housing allowance is not considered an 'income'?


----------



## Jynxgirl (Nov 27, 2009)

Depends who you talk to what response you will get. Expats who do not wish to pay taxes on it, will tell you that you dont have to. As I said, I am not taking that chance of being audited.


----------



## Bevdeforges (Nov 16, 2007)

amik said:


> I was also under the impression that housing allowance is not considered an 'income'?


Take a look through Publication 54. You were mistaken in your impression.
Cheers,
Bev


----------



## Andrew James (Nov 6, 2010)

Jynxgirl said:


> Depends who you talk to what response you will get. Expats who do not wish to pay taxes on it, will tell you that you dont have to. As I said, I am not taking that chance of being audited.


Sadly, any benefit you receive from your employer, be it cash or non-cash, is taxable if you are eligible to claim the foreign earned income and housing exclusions.

Also, the IRS hired a new team of auditors recently and the Middle East is a particular area of focus for them as they believe there is a large amount of lost revenue in the region.

I have seen notices from the IRS if we don't have tax prep fees shown on Sch A, as most multi nationals will pay for their employees to have their taxes done. If they are looking at the small numbers like tax prep fees, you can be sure they are expecting to see housing!


----------

