taxes

Pay tax twice for foreign rental property?

George SaenzQuestionDear Tax Talk,
I am planning to buy an investment property in Turkey. I am wondering whether Turkey and the U.S. have tax agreements, and whether my husband and I would be taxed twice for this rental property. We are both U.S. citizens, but I am also a citizen of Turkey.
-- Turk

AnswerDear Turk,
The United States maintains many tax treaties principally with European nations, including Turkey. Treaties are necessary to prevent double taxation on the same income. For a U.S. taxpayer, a treaty would modify the foreign taxation of income that is treated as from sources within the treaty partner country. Rents from real property are considered from sources within the country that the property is located. See article 6 of the Turkey tax treaty as it relates to immovable property. Hence, the rents could be taxed by Turkey just as a resident taxpayer of Turkey would be subject to tax. The treaty does not provide for reduction in taxes on rental income.

U.S. citizens and residents are subject to U.S. income tax on their worldwide income. Treaties do not reduce the U.S. taxes of U.S. citizens or residents. To avoid double taxation, the U.S. taxpayer would receive a credit for taxes paid to the other country. The income and the expenses of the Turkish rental property should be reported on Schedule E of Form 1040. Convert the income and expenses including income or other taxes into dollars at the prevailing exchange rate.

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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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