How to report Mexican income

[hcliston]

Hi --

My client is a U.S. citizen, and live in the U.S. 

He owns a rental property in Mexico and pays taxes to Mexico on that.

But I understand I still need to report his worldwide income on his US tax forms. How do I do that, and how do I claim the foreign tax credit?

Thank you!

[itonewbie]

The treaty article on income from immovable properties is relatively straight forward.  That means you'd report the income based on US tax law on the US return and claim foreign tax credit for Mexican taxes paid/accrued in plain vanilla fashion.

The complexity is in whether the rental property should be treated as a QBU, which impacts how the income/expenses would be reported in USD, and whether there is any foreign currency-denominated loan taken on the property.

[hcliston]

Thanks very much for responding. 

I want to know just the simple mechanics of what I do. Do I just add the rental income on a normal Schedule E? And then fill out Form 1116 to report that tax paid? 

Anything else? 

I've not dealt with foreign income before (other than a few dollars of foreign tax paid from a mutual fund). 

Thank you!

[itonewbie · Accepted solution]

Yes, report on Sch E and fill out F.1116.  Like I said, you should not disregard the other more complex issues I highlighted because those directly impact the accuracy and completeness of the return you prepare.