Do we report rental on a foreign property as income on the us tax return? I understand that we do but client insist he is NOT required?

[sjrcpa]

Yes, but there are different rules for depreciation.

If your client is a US citizen or Resident Alien he has to report his worldwide income on his 1040.

[providencetaxpre]

Below is an article I read about the subject.  This the reason I am second guessing myself.

 Do I have to report foreign rental property to IRS?

Does foreign real estate need to be reported on Form 8938? Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. For example, a personal residence or a rental property does not have to be reported.

I did see the worldwide income article, as well.

[PhoebeRoberts]

That has to do with disclosing an asset on the Form 8938. It has nothing to do with reporting the income on Schedule E.

[providencetaxpre]

I am looking at his SchB(Form1116) from 2021 1040 and I will be honest this is my first time actually handling this type of return. I just want to make sure that I am understanding this correctly.  I also second guess myself. 

Page one just has Passive box checked and line 8 has a zero, under the 10th year.  Page two is what I am needing the clarification.  

Line 1 has $1372.00 under 1st Preceding Tax Year (PTY) and then that same 1372.00 was carried over to total column

Line 3 has the same $1372.00 in the same columns as mentioned above.

Line 6 has $2063 in columns for Current Year and Total

Line 8 has $1372 in column 1st PTY, $2063 in Current Tax Year and $3435 in the total column. 

Can you confirm this is showing no carryover?

[PhoebeRoberts · Accepted solution]

You can see whether there are foreign taxes carrying over by looking at Page 2 of the Form 1116. If Line 14 is the same as Line 24, there's no carryover.

On the Sch B of the 1116, the zero on Line 8 under the 10th year is pre-printed, because the carryover expires after 10 years.

On page 2, the total carryover is $3,435.

I think you should consider sending this client to someone who sees more foreign source income. I do a fair amount of "normal" foreign, and I'd have to do some un-fun reading to be sure I was getting a foreign rental property right. If the client was already arguing that their foreign source income wasn't reportable, I wouldn't even find a better home for them as I declined their business.

[providencetaxpre]

Thank you!! I would have never considered this client but was assured that the foreign property was no longer needing to be reported to U.S., he claims his United Kingdom lawyers handle all that now.  Upon further investigation I just cannot see how that is possible.  Well because this in NOT my area of expertise. I do think it is time to pass this one on. 

Thank you for your time!!