Question for the Money Doctors
Question submitted on Oct 25, 2012.
QuestionI am a U.S. citizen who owns land in Guatemala. I live and reside in the United States. Agricultural production on the land yields profit. Do I have to pay taxes in the U.S.?
Yes, as a US Citizen, you have to report your income on your tax return from all sources worldwide. However, if you pay any taxes in another country, you will be able to use the Foreign Tax Credit, which is reported on Form 1116 to offset any US tax on this foreign income. If you are operating a Farm in Guatemala, you report the income and expenses on Schedule F on Form 1040. If the land is leased to someone else, then it will be a rental property and that is reported on Schedule E on Form 1040.
This can get really complicated. I cannot find an IRS publication that is spot on to your situation, but Publication 54 comes close and there is a discussion of income earned abroad in Publication 17. You can find these at www.irs.gov or your local library or IRS office.
Take a look at the instructions to Schedule F regarding farm income and expenses. Although you may have positive cashflow, you may not owe tax due to depreciation.
I suggest seeking competent tax advice on this.
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