Buying Real Estate Overseas For Cash Flow (And A Better Life)

Appendix DUnderstanding Your Tax Burden

Income Tax

Americans are taxed on their worldwide income no matter where in the world they're living. That means that, even if you move overseas to manage your cash-flow properties directly, you'll have to file a tax return with the IRS annually and you could owe them money. You may also have a tax filing and/or a tax payment requirement in the countries where you own properties. The possible permutations of what your tax situation might look like in the United States or in the countries where you might invest are many. You should seek professional tax advice, but here are some getting-started guidelines.

In the United States, you'll report rental income from properties overseas as you would report income from U.S. rental properties on Schedule E. You can take the same deductions for an overseas property as you would for one in the United States, with the exception of depreciation. It's calculated on a 40-year schedule for foreign properties.

If you invest in a farm property and aren't doing the farming yourself, the income should qualify as farm rental income category, which you report on Form 4835. Do the farm work yourself, and the income is reported on Schedule F. The important difference is that Schedule F income is charged as self-employment tax. Don't let your accountant tell you that you have to use Schedule F to report income from an agricultural investment when you're not doing the farm work yourself.

One benefit of buying investment ...