Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

I own a company that is registered in St Lucia and it in turn

owns a rental villa that...
I own a company that is registered in St Lucia and it in turn owns a rental villa that is part of a resort in Jamaica that is rented during the year. This is the first year that I have owned the property and have significant losses attributed to it due to extensive renovations and maintenance costs without income for most of the year. Are my losses deductible and if so, what form should I report the property on?
Show More
Show Less
Ask Your Own Tax Question
Answered in 20 minutes by:
1/3/2009
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified
HelloCustomer

What type of company owns the rental property? Is this set up as a partnership, S Corp,,,?

Do you actively participate in the management of this rental property?

Is your modified adjusted gross income more than $150,000 for the year?
Ask Your Own Tax Question
Customer reply replied 8 years ago

It's a S Corp registered in St Lucia, but I'll need to check since it may also be a C corp? Will this make a big difference?

 

The property is managed by Tryall Club which is the resort in Jamaica where the property is located. We pay an annual maintenance and membership fee which covers the on going property management and supervision, since we do not live in Jamaica.

 

Modified adjusted gross Income is over $150,000.

Hello againCustomer

First, let me explain the difference from a tax standpoint of a C Corporation and an S Corporation. With a C Corporation, you are taxed at both the corporate level and then again at the shareholder level. If you had a C Corporation which had profits, those profits would be taxed at corporate rates. Once those profits were then distributed to the shareholders, the shareholders would again be taxed on those profits based on their individual tax brackets.

With an S Corporation, there is no tax at the corporate level. All of the income flows through to the shareholders either in the form of wages or dividends, and then the shareholders pay taxes based on their individual tax brackets.

If the rental unit that you own is the only source of income for your corporation, then since you had a loss for the year, you would not be taxed at the corporate level since there was no profit for the year to tax.

The rental of real estate property is generally considered to be a passive activity. A loss from a passive activity is only allowed up to the extent of passive income. There are exceptions to this rule:

If you are considered to be a real estate professional under IRS definition, then your activity is not considered to be passive, and all of your losses are deductible in the year they occurred. In order to meet the definition of real estate professional, you must devote 50% or more of your time to your real estate activities and your must devote a minimum of 750 hours per year.

You may also qualify to deduct up to a maximum of $25,000 each year from rental losses if you actively participate in your rental activities and if your modified adjusted gross income is less than $150,000. In order to be considered as actively participating, you must actually take part in the decision making of how to manage your property. It does not mean that you have to physically take part in renting the unit or maintaining the unit, but you do have to take an active role in decisions regarding management of the property. If you meet the active participation rule, then you may deduct up to a maximum of $25,000 in losses in any one tax year. If your MAGI is $100,000 or less, then the entire $25,000 is allowed. If your MAGI is between $100,000 and $150,000, then your allowable deduction is reduced by $1.00 for every $2.00 your MAGI exceeds the $100,000 threshold. Once your MAGI reaches $150,000, the deduction is phased out entirely. Any losses which you have in excess of the $25,000 which you were not able to use, are then carried forward for use on future tax returns.

Since you indicated that your MAGI is over $150,000, then even if you actively participate in the management of this property, you would not be allowed to deduct any of your losses from this rental activity. You would, however, be able to carry those losses forward and use them on your future tax returns.

If you meet the definition of a real estate professional, then all of your losses would be allowed in the year they are incurred.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.
Ask Your Own Tax Question
Customer reply replied 8 years ago

One more item for clarification, My wife manages the properties as her work. She does all the marketing and spent more than 50% of her time managing the property in term of the renovations, hiring of staff and coordination with the resort and prospective renters. She traveled to jamaica to oversee the property 8 to 10 times during the year. Would this qualify her as a real estate professional and therefore allow the losses?

 

In addition, I am responsible for our primary income and we file a joint tax return,

 

Wes

Hello againCustomer

If you are married filing a joint return, then if either you or your spouse can individually meet the rules to qualify as a real estate professional, then all of your losses from the rental activity will be allowed.

In order for your wife to qualify, more than 50% of the services which she performs for any and all businesses must be directly related to your business of real estate. She also must perform a minimum of 750 hours per year in performing services for the real estate business. As long as either you or your wife meet these requirements, then you may deduct all of your losses from this rental activity.

Either you or your spouse must meet both of the above conditions without taking into account services performed by the other spouse. In other words, you cannot combine the time each of you spent to say that between the two of you, you spent more than 50% of your time and 750 hours on the real estate activity. The conditions must be met individually by either one or both spouses.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.


Ask Your Own Tax Question
Customer reply replied 8 years ago

Two final questions;

 

First, does my wife have to have any specific real estate designations or licenses to meet the qualifications? She did spend more than 50% of her time given that she resigned her normal position to manage the development, renovations etc. but did not have any prior professional real estate experience or background?

 

Second, what forms would I need to complete to refect the rental real estate and is that form different from the form that I would need to file for the holding company (St Lucia S corp) that we own that in turn owns the property in jamaica.

 

Your responses have been very helpful so far and I think this will be the last questions I want to address to complete this process.

 

Thank You

Hello againCustomer

First, your wife does not need to hold any special license or have any certain background to qualify as a real estate professional, as long as she spends the required time in managing the property.

As far as your tax returns, the S Corporation will file form 1120-S (Tax Return for S Corporation). There is no tax due with this form as all the tax will flow through to the shareholders (you and your wife) and be paid on your own personal return. But the 1120-S will report all the income and/or losses of the S Corporation. The S Corporation will also then issue K-1 forms to each partner to report each partner's share of income or loss from the S Corporation. You and your wife will then report the income or losses from your K-1 forms on your personal tax return, Form 1040.

If this is your first year preparing tax returns for your S Corporation, you will probably want to seek the help of tax consultant, at least for the first year. Once you have a record of the forms that need to be filed and see how they are filled in, you may then in future years be able to file your own returns and K-1 forms.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified
Merlo and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 8 years ago

Merlo,

 

Thanks for your help on this. In doing more work, I've come to realize that the corporation is a Limited Liability company, so it's not a S corp. How does this change the answer you've previoulsy provided and what are the forms that I will need to complete?

Hello againCustomer

If you and your wife are the only two members of your Limited Liability Company, and if the only business you have is from real estate rentals, then the IRS considers your LLC to be disregarded for tax purposes. What that means is that you will not need to file a separate tax return for the LLC itself.

The income and/or losses from your LLC will strictly be reported on the Form 1040 tax return that you file for you an your wife. No other return needs to be filed.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.
Ask Your Own Tax Question
Customer reply replied 8 years ago

 

Does it make a difference that the LLC is registered in a foreign country?

Hello againCustomer

The fact that the company is registered out of the country means that you have no reporting requirements in the US as far as filing a tax return for the company itself. You would just report the income that you and your wife have earned from this rental business on your personal tax returns.

If this was helpful please press the Accept button.

Thank you.
Ask Your Own Tax Question
Customer reply replied 8 years ago
Will I need to indicate that there are is foreign income and expenses?
Hello againCustomer

You do not need to indicate this is foreign income.

When you report your rental income, you will report this on Schedule E. Schedule E will ask you for the address of each property that you had rental income from, so the IRS will know where the property is located.

If this was helpful please press the Accept button.

Thank you.
Ask Your Own Tax Question
Customer reply replied 8 years ago
One last question. Will I also need to complete schedule C to show other business expenses?
Ask Merlo Your Own Question
Merlo
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
9,783 Satisfied Customers
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad

Merlo is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I inherited rental properties. I got an LLC set up using an
I inherited rental properties. I got an LLC set up using an EIN number with a property management who no longet works for me.Can I remove their EIN number? legalgems… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
A foreign individual is a member of a US LLC. Are there any
A foreign individual is a member of a US LLC. Are there any extra requirements for filing when it comes to the partnership return?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
How to report cancellation of debt on rental property?
I received a 1099-C for my rental property that I held for over 1 year. According to the worksheet provided in IRS Publication 4681 I was insolvent just prior to the debt being canceled. My question i… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
Can my LLC with US and Foreign members be a shareholder in
Can my LLC with US and Foreign members be a shareholder in an S Corporation? The K-1 would go to the LLC.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
For a ny state partnership tax return, if you file an
For a ny state partnership tax return, if you file an extension but don't pay anything and then end up owing a lot. Do they still recognize the extension or do they charge a failure to pay penalty (fo… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have a schedule e form that I filed for extension (2016).
I have a schedule e form that I filed for extension (2016) . I attempted to send in time online but was thwarted by my own incompetence to follow directions basically. I saw that if I used a free form… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I just efiled a joint tax return for me and my wife.
I just efiled a joint tax return for me and my wife. Federal, Non Resident Hawaii, and Resident Massachusetts. My wife is a resident alien living in Thailand. Turbotax didnt allow me to e file my Mass… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
If my Schedule E loss is disallowed for a rental property
If my Schedule E loss is disallowed for a rental property (due to income level), can I take the mortgage interest and real estate taxes paid on Schedule A instead of on Schedule E?The entire expense a… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Can individual take residential rental property losses on
Can individual take residential rental property losses on their tax returns … read more
abci168
abci168
Principal
27 satisfied customers
I bought a new rental property. Can I get any tax deductions
I bought a new rental property. Can I get any tax deductions for the money I spend to buy the property? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
abci168
abci168
Principal
27 satisfied customers
Does an LLC need to file K-1 forms if they claim no profit
Does an LLC need to file K-1 forms if they claim no profit or loss? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
My LLC partnership K-1 form shows nothing in Box 19 and
My LLC partnership K-1 form shows nothing in Box 19 and shows $$$ in box 14 A and C. I have no problem with that, but when trying to refinance my home the bank refused to consider the business income … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
On a Partnership K-1, foreign income items are reported on
On a Partnership K-1, foreign income items are reported on Line 16, but in addition there is a separate schedule listing foreign currency gain, Subpart F income and qualified fund income under Sec 129… read more
abci168
abci168
Principal
27 satisfied customers
A taxpayer, Form 1040 Schedule C, is on the cash basis. The
A taxpayer, Form 1040 Schedule C, is on the cash basis. The average revenue for the last 5 years is $5,100,000. There is no inventory. The NAICS is 423600Can he remain on the cash basis?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
A Nevada partnership (LLC form in Nevada) own property in
A Nevada partnership (LLC form in Nevada) own property in Nevada. in 2016, the partnership hire a manager in California to manage Nevada rental property (this manager is show on the Nevada Secretary s… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Deductible unreimbursed partnership expenses are deductible
Deductible unreimbursed partnership expenses are deductible on Line 28 of Schedule E. In this case the expense is a tractor with a cost of $ 25,000.00. This is a depreciable asset and would not normal… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x