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Based on the US and Japan tax treaty, I do not have to pay…

Based on the US...

Based on the US and Japan tax treaty, I do not have to pay tax on any rental income. My wife inherited an apartment with 10 units and it has been generating $ 3,000 to $4,000 per month. Since the rental is covered by the treaty, I have not reported this amount for about 20 years. She sold the property in 2016 and about $ 110,000 is sitting in the bank account for about 2 years.

Accountant's Assistant: Which tax year is this for?

The year the apartment was sold was in 2016.

Accountant's Assistant: Anything else you want the Accountant to know before I connect you?

What report do I need to file with the IRS?

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Answered in 5 minutes by:
6/25/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,364
Experience: Taxes, Immigration, Labor Relations
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I do not think you correctly interpreted the tax treaty provision...

The tax treaty doesn't exclude rental income from taxation, and the tax treaty does NOT exclude rental income from reporting.
The tax treaty allows to avoid double taxation - that is correct.

However - if you are an US person - you do need to rental income on your US income tax return - regardless if that rental property is in the US or abroad.

Correspondingly - you are required to report gain realized from selling rental property.

In additional - you are subject to special reporting when you have bank account in a foreign country.

Here us US-Japan tax treaty

https://www.irs.gov/pub/irs-trty/japan.pdf

Please verify.

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Customer reply replied 1 month ago
I have a few rental properties here in the US. How do I separate the one in Japan? Or do I need to include it all
together?

Yes - you need to report income from rental properties in Japan the SAME way for properties in the US using schedule E.

There are some differences...

For instance - properties abroad are depreciated over 40 years while residential rentals in the US are depreciated over 27.5 years.

In additional income and expenses in the foreign country are converted into USD for tax reporting purposes.

As an US person - you are required to report all your worldwide income.

Then - when the same income is taxed in the US and in Japan - you will claim a credit for taxes paid abroad - thus effectively will avoid double taxation.

Let me know if you need any help with reporting.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,364
Experience: Taxes, Immigration, Labor Relations
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