Recently we have been examining some of the issues that can arise with the ownership of foreign real estate. Here is the last situation we will discuss in this series:
A married couple, both U.S. Green Card holders, owned rental property in their country of citizenship, foreign country “X.” They filed tax returns in “X” and paid all taxes due to the foreign country. Unfortunately, they were unaware of the U.S. rule that requires all citizens and residents to report worldwide income on their U.S. tax return. They also had a foreign bank account into which they deposited the rents and paid the expenses. The balance in the account was usually around the equivalent of $15,000 USD.
Not only had the couple under-reported their gross income on their U.S. tax returns, they also were out of compliance with the FBAR foreign bank account reporting requirements. Penalties can be extremely high for noncompliance of the FBAR reporting rule. With our help, they were able to minimize penalties by utilizing the Streamlined Domestic Offshore procedures, and the New York State (NYS) Voluntary Disclosure and Compliance Program. We prepared amended U.S. and NYS tax returns for the past three years, and six years of past-due FBAR returns (all that is required under the Streamlined program). With the foreign tax credits allowed on their U.S. tax return for taxes paid to “X,” their U.S. income tax liability was minimal. They are now in compliance with both the U.S. government and New York State and no longer worry about future repercussions.
We hope you enjoyed this blog series on the possible tax consequences of owning a home or rental property in a foreign country. If you would like to learn more about how we can help you navigate the U.S. and foreign tax landscape, please reach out to us at firstname.lastname@example.org or call us at 607-272-5550.