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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29528
Experience:  Taxes, Immigration, Labor Relations
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I have a rental property in the uk (I am a permanent Resident

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I have a rental property in the uk (I am a permanent Resident in US). The UK tax authority have told me under the Double Taxation agreement income from property is taxable in the UK. Does this mean I need not include it on my US tax return? So far the UK tax office have not asked for previous years - will I be able to claim back overpayment on my US taxes?

Lev :

Hi and welcome to our site!
Because you are a resident in the US - all your worldwide income is taxable.
The tax treaty doesn't release you from reporting requirements - so you will need to report your rental income and rental expenses on your US tax return regardless if the property is located in the US or abroad.
However - the tax treaty provides a relief from double taxation of the same income.

Lev :

If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

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