What Can You Deduct When You Own Foreign Real Estate?


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I received the following question at USTaxAid. In today’s growing global market, it asks an important question. What happens when you invest outside the US? How does that impact your taxes?

The question I received:

“I have property in India which I have been renting for the past few years. I want to form an LLC, and use this to rent the property. I also want to employ my kids to do some book keeping work.

Is this OK? Will this cause any problems with the IRS?”

Answer:

This brings up some interesting questions. Let’s start with the general question of how do you handle the taxes for foreign real estate.

If it’s a rental, then you have rental income and expenses, just like property you own in the US. The depreciation is calculated on foreign property a little differently. Likely you also have to pay foreign taxes. In most countries, like India, the taxes you pay to the foreign government are tax credits against your US taxes. So you don’t pay double taxes. It does depend on what the tax treaty between the US government and that government says for the final answer, though.

There are two more parts to this. Can he/should he set up an LLC for the property? Typically LLCs are used for asset protection. The US LLC wouldn’t have nexus in India. You should talk to a lawyer in India and determine what the right structure in India would be to provide asset protection.

The last question is whether you can employ your kids to provide bookkeeping for your Indian real estate. Sure, you can. Make sure the amount you pay them is reasonable for the amount of work they do and the type of work they do. You don’t need an LLC to take that deduction.

Got a question? Here are some ways to get your tax questions answered? https://www.ustaxaid.com/tax-question/. Answers may be found in subsequent Blogs.



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