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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Me and my wife moved to the USA about 12 years ago. We sold

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Me and my wife moved to the USA about 12 years ago. We sold our UK home property a couple of years after moving and bought another UK property with the proceeds also in the UK. We have never lived in that property but have rented it out on and off since then. The income is not enough to incur UK taxes and since it was not bought with money earned in the USA so we didn't realized we might need to declare it in the US.
Im now reading about new rules that the IRS wants to know about assets held in other countries. Should I be declaring this property and will I be taxed in any way on its value or its purchase 9 years ago? Im also wondering if I might have back taxes due on the rental income from it? Is that right and if so how many years back would I need to report?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to Just Answer!
Several issues...
1. Reporting requirements...
As US residents - you are required to report on your tax return all your worldwide income - regardless it is earned in the US or abroad and regardless if you keep the money abroad of transferred them to the US.
2.
You do not need to report the fact of having a property in the US. Reporting requirements are only for financial accounts.

you should report a foreign account by

-- completing boxes 7a and 7b on Form 1040 Schedule B - http://www.irs.gov/pub/irs-pdf/f1040sb.pdf .

-- you are a subject of FBAR reporting if a foreign account value is above $10,000. The form to use is TD F 90-22.1 - this form is mailed separately. There is no tax associated with these reporting.

3.

In additional - you need to file form 8938 - because your amount is more than $50,000 www.irs.gov/pub/irs-pdf/f8938.pdf - that form is attached to your tax return.

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts.

Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season.

4.
You need to report your rental income and corresponding rental expenses on your tax return every year. You will use schedule E - www.irs.gov/pub/irs-pdf/f1040se.pdf
Here are instructions - www.irs.gov/pub/irs-pdf/i1040se.pdf
Only your NET rental income is added to your other taxable income.
5.
The sale transaction of your rental property is reported on form 4797 - www.irs.gov/pub/irs-pdf/f4797.pdf .
part of your gain attributable to depreciation recapture will be taxable as your ordinary income - the maximum tax rate is 25%.
The rest of the gain will be classified as long term - taxable at reduced rate - not more than 15%

Let me know if you need help with reporting.
Customer: replied 2 years ago.
Some clarification please.

You say in #2 that I do not need to report the presence of a property to the IRS.
But you also say #3 I need to file form 8938 because 'your amount is more than $50,000'.
What amount are you talking about? do you mean a financial bank account? Because our UK account has less than $10,000 in it or do you mean because the property is worth more than $50,000 in which case that seems to contradict #2.
Also do I have to declare my rental income for previous years and if so how would I go about doing that.

thanks! -N
Expert:  Lev replied 2 years ago.
You say in #2 that I do not need to report the presence of a property to the IRS.
But you also say #3 I need to file form 8938 because 'your amount is more than $50,000'.
What amount are you talking about? do you mean a financial bank account? Because our UK account has less than $10,000 in it or do you mean because the property is worth more than $50,000 in which case that seems to contradict #2
.
I do not see any contradictions...
Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season.
Real estate properties are not financial assets and you do not report the fact of having a rental property on that form.

Also do I have to declare my rental income for previous years and if so how would I go about doing that.
Under the US tax law - you are required to report your rental income every year since you became an US resident. There is no such provision which allows you not to report your income just because it was many years ago.
However from the practical point - please be aware that there is a statute of limitation for the IRS to assess additional tax liability - which is generally three years.
The statute of limitation is six years if omitted income is 25% of your reported income. And there is no statute of limitation if the tax return was not filled or in case of fraud.

Let me know if you need any help.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22692
Experience: Taxes, Immigration, Labor Relations
Lev and 4 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Thank you - so the real estate property does not constitute a financial asset. I understand.
The only thing Im still a little unclear on is when you stated:

In additional - you need to file form 8938 - because your amount is more than $50,000 www.irs.gov/pub/irs-pdf/f8938.pdf - that form is attached to your tax return.

Since I do not have any financial accounts with a total value more than $50,000 I assume I do not need to fill out 8938 - correct?
Expert:  Lev replied 2 years ago.
That is correct - no need to use form 8938.
As I mentioned above - form 8938 was introduced starting 2011 tax year as a result of the Foreign Account Tax Compliance Act (FATCA).

Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS.

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