Prologue: Tweet by Citizenship Lawyer – @expatriationLaw – Video: Carrick Talks Money: The tax issues facing Americans who sell Canadian homes fw.to/qZwKS8i – No tax free capital gain
If (U.S. Person) then (Mr. #FBAR Ms. #PFIC and Uncle #FATCA) = Few investment and financial planning opportunities).
Yes, it’s true. There are only three things that Americans abroad can “invest in” that do not Read More
Selling a property one has owned for a long period of time will frequently result in a large capital gain, and reporting all of the gain in one year will generally expose the gain to higher than normal capital gains rates and subject the gain to the 3.8% surtax on net investment income added by Obamacare.
Capital gains rates: Long-term capital gains can be taxed at 0%, 15%, or 20% depending upon the taxpayer’s regular tax bracket for the year. At the low end, if your regular tax bracket is 15% or less, the capital gains rate is zero. If your regular tax bracket is 25% to 35%, then the top capital gains rate is 15%. However, if your regular tax bracket is 39.6%, the capital gains rate is 20%. As you can see, larger gains push the taxpayer into higher capital gains rates. Read More
Some retirees are faced with mounting debt and inadequate income. What options do these seniors have, especially if they have a mortgage on their home and their retirement income is too low to cover the mortgage payments and have enough left over to have some enjoyment in their golden years?
One option that you see promoted on television is the “reverse mortgage” which allows a homeowner to borrow against the equity they have built up in their home over the years. The loan is not due until the homeowner passes away or moves out of the home. If the homeowner dies, the heirs can pay off the debt by selling the house and any remaining equity goes to them. If at that time the loan balance is equal to or more than the value of the home, the repayment amount is limited to the home’s worth. Read More
With careful planning, and provided the rules are followed, the tax code allows the home sale gain exclusion every two years.
Let’s assume you own a home, perhaps a second (vacation) home, or maybe are even thinking about buying a fixer-upper and flipping it. With careful planning, it is possible to apply the full home sale exclusion to all three of the properties.
Here is how it works. The tax code allows you to exclude up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you have lived in it and owned it for two of the five years immediately preceding Read More
I keep saying this, “The world is shrinking!”, ad nauseum perhaps, but I just cannot seem to get over that. When I went into the tax profession 15 years ago, I never thought I’d be reading as many tax treaties as I do now! I found out that the US had a Tax Treaty with Ukraine this year! Go figure!
Speaking of a shrinking globe, Inter-Governmental Agreements and Tax Treaties, it was uncanny this tax season, I had more than my share of clients who had a property or two in foreign countries by way of an inheritance or purchase and after having held it for a while as investments, they were now contemplating turning them into rentals.
I had written about owning foreign real estate a few blog-posts ago. You can read Read More
It is becoming increasingly common for couples to live together and remain unmarried, which can lead to potential tax problems when they share the expenses of a home but only one of them is liable for the debt on that home.
Home mortgage interest can generally be deducted only by a person who is legally obligated to pay the mortgage (in other words, a person who is named as an obligor on the mortgage document). However, there is an exception to the preceding general rule for interest paid on a real estate mortgage when a person is a legal or equitable owner of the real estate but is not directly liable for the debt.
For example, if the one who is not liable on the mortgage makes the payment, that Read More
Richard S. Leyh et ux. v. Commissioner (T.C. Summ. Op. 2015-27) details a case in which a taxpayer could revise her contemporaneous log of daily rental property activity and qualify as a real estate professional for income tax reporting purposes.
When the IRS audited the taxpayer’s 2010 return, the log totaled 632.5 hours spent in real estate activity (at 12 rental properties). The taxpayer lived 26-30 miles from the properties and when revising the log, which did not include travel time, it totaled 846 hours. Read More
As the economy shows signs of improvement, with the stock market rebounding and unemployment falling steadily, it is only reasonable to believe, all thing being equal, that the housing market will also rebound, and will once again become a very viable investment vehicle. There are a number of distinct tax advantages to be derived from investing in real estate, and this article will look at some of these advantages. For both middle and high-income individuals alike, the tax advantages of investing in real estate can be substantial. Some of the advantages are as follows:
The IRS allows investors to depreciate (deduct from rental income) the cost of a residential rental building over a period of 27.5 years, and 39 years for nonresidential Read More
There’s this question that I always get from my clients: “Do I have to report my real estate holdings in a foreign country?” To which, my answer (in true accountant style) is always: “It depends”. Let me explain further.
You may be a first generation immigrant to the US and still have strong ties to your home country; by way of family elders who live there or a strong sense that you would like to some day retire back there, where you grew up. Or you are an adventurous investor who would like to invest in a little vacation home by the beach in the Caribbean. Or you were stationed abroad through your job and loved it so much that you invested in some property there. Then this blog is for you to read! Read More
Owning a portfolio of offshore assets can be a headache thanks to the Foreign Account Tax Compliance Act (FATCA). FATCA requires both U.S. citizens and foreigners living in the U.S. to make extensive disclosures about overseas holdings on their tax returns or face stiff penalties. Foreign financial institutions also must report more detailed information on income earned by their U.S. account holders, or face possible U.S. tax penalties.
FATCA is the culmination of a three-year campaign by Washington to combat offshore tax evasion. It has its genesis in a 2009 settlement with UBS AG where the Swiss bank agreed to turn over to the U.S. the names of more than 4,000 U.S. taxpayers with hidden offshore accounts. Read More
Back to my friends that I previously wrote about who misunderstood passive activity and material participation. They are a married couple filing jointly and own a very successful business together structured as an S-corporation as well as a portfolio of rental real estate properties. They actually consider themselves privileged to have their their tax woes shared anonymously via this tax blog which is helpful as I appreciate any opportunity to share how real life scenarios are applied to the US internal revenue code.
One of the properties my friends own – titled in their personally names jointly – has as a tenant an S-Corporation in which they each also own 50% of the shares issued and outstanding. Basically they hold title to the rental property – a large office warehouse complex – and they own the corporation that rents the property. Unfortunately this rental Read More
Many people have built impressive residential real estate portfolios one property at a time, living in the property while fixing it up thus declaring it their primary residence for income tax purposes and then moving onto a new house to fix up and subsequently rent out, and repeat. Several of my friends in Colorado, Minnesota and Wisconsin are doing this to one or more homes per year. Good for them!
For those with the tools and the skill set it is a great way to navigate life. For me, I know as a matter of fact my wife would have divorced me 3 time over if this was my calling. She just has a thing about living in a kept up uncluttered house. Nevertheless my friends usually Read More
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