Do Americans need to report rental income from foreign properties to the IRS?
The answer is yes. American citizens must include all earned income regardless of its source on their American tax reports. Additionally, if foreign rental income is paid into a non-U.S. bank account, depending on the bank account’s balance, you may also face additional reporting requirements to Uncle Sam with the FBAR form. [Be sure you check with your own tax professional; this article is general in nature and is not specific tax advice.]
How we help people own real estate in their U.S. brokerage accounts
There is a way to invest in real estate without having to deal with tenants and added reporting requirements. Through your brokerage account in America, investing in REITs (real estate investment trusts) provide the diversification of owning real estate without the headaches of managing a rental property.
The REIT option
The main advantage of a REIT is that you can invest in real estate for a smaller initial sum than you would need to buy one investment property. And, a single REIT can provide diversification within the broader field of real estate. This can serve to lower the risk of investing in real estate.
Rather than receiving income in the form of rent, REITs pay dividend income, since they are required to pay out 90% of their income.
Investing in REITs, as everything else on Wall Street, carries certain risks. The risk of an individual REIT varies depending on the geographic location of the investments and the quality and lease length of the underlying properties. Make sure to discuss with your financial advisor whether it is an appropriate investment for you.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published June 29, 2015.