Foreign Rental Income

[athaureaux6]

Hi online community, need your advice here: 

I have a potential new client whose previous preparer retired. After talking to him, he told me that he owns an apartment in Mallorca, Spain  and it has been rented for the past 10 years but has never included that in his income taxes. To tell you the truth, I have never had a case like that before, but after reading some Google searches it seems that foreign rental income should be included in Schedule E, almost with the same laws that a US rental income. What would you do on this case? Had anybody have cases like that before? I will appreciate your comments. Thank you everybody. 

[jztax]

Unless client chooses to amend three years tax returns, I would just gather details about the rental property, including income received, expenses incurred,settlement information regarding the property, and prepare 2024 1040 with schedule E.

[IRonMaN]

I get overly curious on Fridays.  Did the retired guy tell him he didn't have to report that income or didn't he think it mattered until you asked the right question?

[TaxGuyBill]

You may consider referring this person to an expert in foreign tax matters.

FBAR, FATCA, Form 8858 and more all have gigantic penalties, and may need special actions to cover the years when they were not filed.  Plus Section 988 gains/losses and other special rules could apply.

[athaureaux6]

He said he was never asked. The taxpayer says he used to send all the documents but rarely meet with the preparer. 

[Taxes-by-Rocky]

I know this is semantics with respect to your questions but.....what does it mean to "own an apartment?"

I say this because, as implied above, you might want to obtain specific information with respect to his ownership interest in the property (i.e., does he actually own a deed to the real estate, an interest in a cooperative of some type, etc. - all of which may impact the reporting).  I realize he may have collected the funds.

[Accountant-Man]

A US citizen pays tax on "worldwide income." Unless that is covered in the US-Spain tax treaty, it is potentially income subject to US income tax. Many rentals generate losses after depreciation expense.

You are only obligated to prepare 2024 correctly. You should tell him about all other years, but HE is obligated to file those years, not you.

[jeffmcpa2010]

Accountant Man is correct.

As for me, the "potential clients" decision about the prior year would probably have a significant impact on whether or not I choose to accept them as a client.