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Question for the Money Doctors

Question submitted on Aug 7, 2012.

Question

I am trying to help a dentist get a loan. this dentist is an american citizen who owns a small property in Egypt that he earns less than 10,000 a year in rental. He keeps that money in a bank in Egypt and does not draw from it. The bank that he applied with said that he has to pay income taxes in the US on that money and wants his accountant to amend his tax return before they will consider a loan for the Dentist. They also said that it must appear on him taxes every year. Is this true?

Answer

If you are a US Citizen or Resident, you have to report your income for all sources worldwide. If he is receiving $10,000 in rental income, that needs to be reported on a Schedule E on his tax return. He is entitled to deduct expenses related to the rental property that he pays - this includes cleaning & maintenance, insurance, supplies, repairs, property management fees, property taxes, utilities, etc. He is also required to claim depreciation on this property. The depreciation will depend upon whether it is a residential or commerical property and what is in the property that is being rented.

If he pays any income taxes in Egypt on this income, he can claim a Foreign Tax Credit against any US tax on this income.

Also, if he has more than $10,000 in a bank account overseas, that will need to be reported on the FBAR Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts). Any interest income earned will need to be included on Schedule B.

Although this income was not reported to him on a Form 1099, he will need to report it on his tax return.

This is complicated and I suggest consulting a CPA/PFS (www.findacpapfs.com) familiar with these matters.


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