Some people have bought properties abroad during a Real Estate boom of 2000-2007. If they haven’t sold those properties, they often rent them, trying to recoup somehow an avalanche of unforeseen expenses related to the properties. In most cases, these people are pretty shy to show those rentals in their tax returns. They may be afraid of seeming complexity if reporting and lack of good records that would proof the validity of reported income and expenses related to rental properties. Besides, currency conversion can also be a serious issue.

Considering all of these reasons that refrain investors in foreign real estate from reporting rental income, I would call them petty against stiff penalties IRS scare to impose on people who are hiding these activities. In most cases, reporting of rental income can even benefit you in lowering your overall tax burden.

This may sound surprising for you, but the benefit can be very material. There are though some unique specifics that your tax preparer needs to know in order to have done a good and correct job for you. You also have to get proof of your income and expenses. If your tenants pay by cash, you should have a lease or similar agreement with some kind of copy of the slip for receipt of payments. These receipt books are sold in office supply stores. This receipt usually states that you received certain dollar or foreign currency amount from the tenant for rent, in this case, on the certain date.  Don’t forget to put period for which the tenant pays and put your signature on the receipt.

If you pay real estate tax for your property oversees, there are two ways to represent this in your return. We are choosing the way that benefits you most. The application depends on your overall income. Sometimes, it better as deduction on your schedule E, where you report your rental activities, and the other way is to claim foreign tax credit.

If you took a mortgage, it doesn’t make a difference if a loan was taken from a foreign bank or from a foreign person, as soon as documents are prepared correctly, and payments were cut during the year of the tax return. Your other expenses also must be substantiated. All reasonable expenses OK even your occasional travel.

All these requirements may sound like a difficult task, but it’s not as seems to be. Many of your expenses are reoccurring and work out automatically as soon as you are done with setup.

This report is a must, and you have to direct yourself to do the right thing .