u.s. expat tax guide – brazil
Do US expats need to report rental income from properties in Brazil?
Yes, if you are a US citizen or green card holder, you must report any rental income from property you own abroad, including those in Brazil.
This is true whether you rent the property full-time or occasionally, even through platforms like Airbnb. All income earned must be reported to the IRS.
How do you report rental income from your Brazilian property?
To report rental income from a Brazilian property, you need to file Form 1040 with Schedule E attached. On Schedule E, you will provide information about rental earnings and expenses related to the property.
You can deduct certain expenses, such as management fees, maintenance, utilities, and depreciation, to help lower your taxable rental income.
What if you already paid taxes in Brazil on your rental income?
If you have already paid taxes on rental income in Brazil, you can avoid being taxed twice by claiming a Foreign Tax Credit (FTC) on Form 1116.
This credit offsets the taxes you paid in Brazil against what you owe in the US.
What happens if your rental expenses are higher than your rental income?
If your rental expenses exceed your income, you end up with a rental loss. This loss can be used to reduce your overall US taxable income.
If the loss is bigger than your income for the year, you can carry it forward to reduce your tax bill in future years.
Which forms do you need to report rental income from abroad?
Besides Form 1040 and Schedule E, you might need to file Form 8858 if your rental property is held through a foreign disregarded entity. Form 8858 provides more details about income sources from foreign entities, like your Brazilian rental property.
Can rental losses from Brazilian properties reduce other US income?
Yes, rental losses from a property in Brazil can help reduce your other taxable income. When you report your income and expenses on Schedule E, any losses can offset other sources of income, such as your salary or investment earnings.
How can you offset rental losses?
- Passive Activity Loss Rules: Typically, rental income is seen as passive income, meaning that rental losses can only offset other passive income. If your rental losses exceed your passive income, you can carry those losses forward to future tax years.
- Special Rental Loss Allowance: If your Modified Adjusted Gross Income (MAGI) is below US$100,000, you may be able to use up to US$25,000 of rental losses to offset other income. This allowance phases out if your MAGI is between US$100,000 and US$150,000.
- Currency Conversion: Remember to convert all rental income and expenses from Brazilian Reais (BRL) to US Dollars (USD) using the correct exchange rate at the time of each transaction.
What should you know about Airbnb and other short-term rentals?
If you rent your property on Airbnb or similar platforms, there are additional rules to follow:
- Income Reporting: If you rent your property for fewer than 15 days in a year, that income does not need to be reported. However, if you rent it for more than 15 days, all income must be reported. Depending on the services you offer, like daily cleaning or meals, this income could be considered either rental income (reported on Schedule E) or business income (reported on Schedule C).
- Deducting Expenses: You can deduct expenses like cleaning fees, utilities, and maintenance costs. However, if you also use the property for personal purposes, expenses must be divided between personal and rental use.
- Foreign Tax Credit: If you pay taxes in Brazil on rental income, you can use the Foreign Tax Credit to avoid being taxed twice. Keep detailed records of all taxes paid for accurate reporting.
Do you need to file Form 8858 along with Schedule E?
It depends. If your Brazilian property is owned through a foreign company that is treated as a disregarded entity for US tax purposes, you may need to file Form 8858 in addition to Schedule E. This ensures that the IRS has all the necessary information about your foreign rental income.
How can a tax professional help you manage foreign rental income?
Managing foreign rental income can be complicated due to the additional forms and foreign tax credits involved. A tax professional can help you file Form 1040, Schedule E, Form 1116, and Form 8858 if needed.
They can also assist with currency conversions, dividing expenses appropriately, and ensuring you make the most of credits like the Foreign Tax Credit and rental loss deductions.
