Does international real estate lose US tax benefits?

Question

Hi all,

A big advantage of real estate is that it can be a large tax writeoff. The "depreciation" and mortgage interest writeoffs can save quite a bit.

If I invest in say mexican or canadian real estate will I lose those nice tax writeoffs that I know US real estate has, or does it apply to real estate in any country?

Thanks

Steven Hamilton II · Answer

Overall the general treatment is the same; however, if you have to pay income tax on the income generated then you will need to fill out Form 1116 Foreign Tax Credit.
You will also be using a longer depreciation method. You will depreciate the property over the course of 40 years rather than 27.5 The reason for this is to encourage US residents to reinvest in the US rather than outside.

Chris Clothier · Answer

Ashan -

You would want to consult a really good CPA who understands real estate investing, because simply investing in real estate does not entitle you to immediate use of all of the tax advantages you mentioned. There is a lot more to the tax code and what deductions and advantages you can use this year as opposed to carry forwards and much of it depends on not only how involved you are in your real estate investing, but also what you are doing outside of investing in real estate.

So be sure and talk to a CPA as well about the advantages and whether they apply to property outside the US.

Chris

Bill Walston · Answer

Absolutely right Mitch - and a SINGLE-member LLC at that :-) I use them so infrequently I failed to mention it. Thanks for the reminder!

Mitch Kronowit · Answer

Just a side note, but if your rental property(ies) are held in an LLC that hasn't selected an alternate status, then Schedule E will still be used.

Bill Walston · Answer

Hope this helps.

Guy Gailliard · Answer

I don't know about other countries other than the US, but if you set up a LLC in the US you will get the tax benefits.

Does international real estate lose US tax benefits?

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