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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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If a US citizen sells investment property owned in Mexico,

Customer Question

If a US citizen sells investment property owned in Mexico, are taxes due in both the US and Mexico on the profit (original cost about $20k and selling cost about $50k). Also, are some costs deductible (e.g., travel to maintain the property, improvement costs, etc...)? Thank you for your assistance. The owners are retired and their only income is from US Social Security (about $29k combined) and they are over 70 years old.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

First of all - if the same income is taxed in the US and abroad - the taxpayer may claim a foreign tax credit.

- to determine the amount of credit - the person should use the form 1116 and attach it to the tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf

Here are instructions -

http://www.irs.gov/pub/irs-pdf/i1116.pdf

On your tax return - form 1040 -

http://www.irs.gov/pub/irs-pdf/f1040.pdf

the credit is reported on the line 48.

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If the taxpayer travel to complete the sale transaction - these are selling expenses and deductible.

Expert:  Lev replied 1 year ago.

travels to maintain the property in prior years are deducted in those years,

The cost of improvement is added to the basis and depreciated.

But we need to be clear if that is a rental property?

Customer: replied 1 year ago.
The property that is being sold is vacant and and not used for rental purposes.
Expert:  Lev replied 1 year ago.

Then - you definitely may add improvement expenses to the basis.

Expert:  Lev replied 1 year ago.

Repair and maintenance expenses may be deducted as investment expenses every year they are paid.

As the property was vacant - you might want to keep documentary proof that the property was NOT used as personal by you or your family members.

You would need that if the IRS will question deduction of investment expenses.

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