U.S. EXPAT TAX GUIDE – BRAZIL
Do US expats need to report rental income from Brazilian properties?
Yes, as a US citizen or green card holder, the IRS requires you to report all of your income, including rental income from properties you own abroad, such as in Brazil.
It doesn’t matter whether the property is rented full-time or occasionally through platforms like Airbnb—any income generated must be reported.
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How do you report rental income from a Brazilian property to the IRS?
To report your rental income, use Form 1040 and Schedule E. This is where you detail the income and expenses related to your rental property.
Expenses you can deduct include property management fees, repairs, utilities, and depreciation, which helps account for wear and tear on the property over time.
What if you’ve already paid taxes on rental income in Brazil?
If you have paid taxes on your rental income in Brazil, you can claim a Foreign Tax Credit (FTC) on your US tax return using Form 1116. This credit helps prevent double taxation, ensuring you aren’t taxed on the same income by both Brazil and the US.
What if your rental expenses are greater than your income?
If your rental expenses are greater than your income, you have a net loss. This loss can be used to reduce other income on your US tax return, which may lower your overall tax liability.
If your rental loss exceeds your income for the year, you can carry it forward to offset income in future years.
Which forms are required for reporting foreign rental income?
In addition to Form 1040 and Schedule E, you may need to file Form 8858 if your rental property generates income outside of the US. Form 8858 ensures that the IRS has a complete record of your foreign income, such as rental earnings from your Brazilian property.
Can you use rental losses from a property in Brazil to reduce other US income?
Yes, if your Brazilian property incurs losses—meaning your rental expenses exceed your income—you can use these losses to reduce your other income on your US tax return.
When you report your rental income and expenses on Schedule E (Form 1040), any net loss from your Brazilian rental can be used to offset other income, such as your salary or investment gains.
What are the rules for offsetting rental losses?
- Passive Activity Loss Rules: Rental income is usually considered passive income, unless you qualify as a real estate professional. This means rental losses can generally only be used to offset other passive income. If your rental losses exceed your passive income, the excess can be carried forward to future years.
- US$25,000 Special Allowance: If your Modified Adjusted Gross Income (MAGI) is US$100,000 or less, you may be able to offset up to US$25,000 of your other income with rental losses. This allowance gradually phases out between US$100,000 and US$150,000 in MAGI.
- Currency Conversion: Since your income and expenses are in Brazilian Reais, you’ll need to convert these amounts to US dollars using the appropriate exchange rate, which can affect the total reported on your tax return.
How do Airbnb and short-term rentals affect your tax obligations?
If you are renting out your property through Airbnb or other short-term rental platforms, there are some special rules to follow:
- Rental vs. Business Income: If you rent your property for less than 15 days in a year, you do not have to report the income to the IRS. However, if you rent it for more than 15 days, the income must be reported. Depending on the services provided—such as daily cleaning, meals, or tours—this income could be treated as rental income (reported on Schedule E) or business income (reported on Schedule C).
- Deducting Expenses: You can deduct costs related to maintaining and managing the property, such as cleaning, utilities, and depreciation. If you use the property for personal reasons during part of the year, expenses must be split between personal and rental use.
- Foreign Tax Credit: Since your property is located in Brazil, you may need to pay taxes on this income to the Brazilian government. To avoid paying taxes twice, you can claim a Foreign Tax Credit on your US return. Keep records of all taxes paid in Brazil for accurate reporting.
- Local Regulations: Make sure you follow local Brazilian rules regarding short-term rentals, such as registering your property and paying local taxes. Ignoring these regulations could lead to fines and penalties, which may also affect your US tax filing.
Do you still need to file Form 8858 if you report rental income on Schedule E?
It depends. If you own your Brazilian property through a foreign company treated as a disregarded entity for US tax purposes, you may need to file Form 8858 in addition to Schedule E.
How can a tax professional assist you with foreign rental income?
Reporting foreign rental income can be complicated due to additional forms and foreign tax credits. A tax professional can help you file everything correctly, including Form 1040, Schedule E, Form 1116, and Form 8858 if needed.
They can also advise on currency conversions, expense allocation, and making sure you get all the tax benefits you’re entitled to, such as the Foreign Tax Credit and deductions for rental losses.
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 Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
