Owning a property in the UAE
In the past few years, the United Arab Emirates (UAE) has been a very attractive place for some individuals to purchase properties. The appeal of living in big cities like Dubai and Abu Dhabi has continued to rise with professional opportunities, tax benefits, cultural diversity, and a lifestyle comparable to no other.
Do I report my rental income from the UAE to the IRS?
If a US individual rents a property in the UAE, the rental income must be reported and taxed on their US tax return. However, there are deductible expenses and costs associated with maintaining the property, such as repairs and management fees, which can offset the rental income.
Specifically, Form 8858 is required to report non-US rental income. Be sure to include From 8858 with your 1040 individual tax return.
Additionally, the net rental income is taxable in the US If there’s a net loss, it can be beneficial in the current tax year or carried forward to future years, depending on the individual’s tax situation.
What if I live in my property?
Using the property as a primary residence doesn’t incur tax liability. However, it affects the ability to claim housing expense deductions.
For example, owning and living in your property in Dubai or elsewhere in the UAE eliminates the possibility of claiming housing expense deductions under the foreign-earned income exclusion.
Also, while mortgage interest can be considered for tax deductions, it often provides less significant a benefit than the housing expense deduction.
I want to sell my home in the UAE
There are several points to note:
- Exclusion on Gain from Sale: US individuals who have lived in and owned the property for two out of the past five years from the sale date can exclude a portion of the gain.
- Exclusion Limits Based on Filing Status: The exclusion amount is $250,000 for single or married filing separately and $500,000 for married filing jointly.
- Tax on Remaining Gain: If the net gain exceeds the exclusion limit, the remaining amount is subject to US tax. For instance, a $1 million gain with a $500,000 exclusion for married filing jointly leaves $500,000 taxable.
What should I remember if I own property in the UAE?
- Report Rental Income: Ensure all rental income from UAE properties is reported on your US tax return.
- Seek Professional Help: A tax professional can help you with deductible expenses and how they can offset rental income.
- Consider Sale Implications: Consider the tax implications when selling a property, especially the exclusion limits based on your filing status.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
Table of contents
AM I ELIGIBLE FOR FOREIGN EARNED INCOME EXCLUSION? Learn from Tanveer Mannan, a highly experienced IRS Enrolled Agent based in Dubai. Having worked at EY and PWC before joining EXPAT US TAX, Tanveer has 15 years’ experience of helping Americans get the correct advice when they come to work in UAE. Getting the correct tax […]