Discussion:UK Citizen with partial interest in US RE

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Discussion Forum Index --> Advanced Tax Questions --> UK Citizen with partial interest in US RE

Discussion Forum Index --> Tax Questions --> UK Citizen with partial interest in US RE

Bottom Line (talk|edits) said:

6 December 2010
Have a client that owns 50% of a rental house with his cousin who is a UK citizen. The 50% interest will show around $3,000 income for 2010 after depreciation. The cousin is a UK citizen and lives in the UK. He visits the US for a couple of weeks a year for vacation. Looks like I'll be doing a 1040NR for the cousin. Of course we'll need to get him an ITIN. Anything I need to keep my eyes open for?

R2 (talk|edits) said:

6 December 2010
Watch the 30% tax on gross rental income. The client may wish to elect out of the 30% tax.

Bottom Line (talk|edits) said:

6 December 2010
Yea-that's a lot. Told him he would need to talk with his tax person in the UK regarding this. Sent him financials for the first 11 mths of 2010 so would have an idea what the numbers would look like.

R2 (talk|edits) said:

6 December 2010
The 30% tax will apply to his Form 1040NR, not the UK return.

Lizzit (talk|edits) said:

6 December 2010
To clarify R2's comments:

1) In the US, a 30% withholding tax is required for rental income paid to non-Americans.

2) In the US, he then files a 1040NR and claims a refund for the US withholding in excess of his actual balance due (which should be zero).

3) In the UK, the figures are reported from 6 April 2010 to 5 April 2011. They don't do calendar years. So, if you or the client can supply these figures on a fiscal year basis to the UK accountant, you'd be doing the UK accountant a HUGE favour.

4) In the UK, we can't claim depreciation. And there ends up being a discrepancy on the income years (when there's UK tax due to a lack of depreciation but no US tax) and the sale year (when there's US tax due to the tax on depreciation allowed or allowable but there isn't in the UK). Therefore, on the UK guy's 1040NR, I usually use 50% land value and 40 yr straight line Alternative Depreciation System (ADS).

5) But wait! you say. That's not what the other guy is doing! Well, they each can have their own supportable reasons for doing it their way. Realistically, just between you, me, and the doorpost, is a 20% land value (the typical thing we're all taught to do) actually realistic? No. It's not in the least. 50% is much more accurate. But we all do the 20% because it saves our clients money and the IRS hasn't complained so far. In this client's case, however, 50% is going to save him more money AND it's more realistic. That's why you're going to do something different for him than you do for your other clients who are stateside and need the extra deductions that 20% is going to get them.


IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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