us taxpayers moving to mexico.ppt - taxconnections...itemized deductions • mx mortgage interest is...
TRANSCRIPT
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U.S. Taxpayers Moving to Moving to
Mexico
Presented by:Presented by:
Global Executive ManageMent Solutions
1260 Olympic Drive
Oxford, GA 30054Oxford, GA 30054
(678) 625-7641
www.GEMMS.us
[email protected]@GEMMS.us
Prepared November 2010 v. 1.2
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Q&A anytimeQ y
i i45 min presentation
15 min open discussion
I encourage asking questions as we go along.
If you are thinking it, someone else is thinking it tooelse is thinking it too…
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Disclaimer• This presentation is not intended to be the tell all
and know all of all situationsand know all of all situations.
• The purpose of this presentation is to provide the p p p pU.S. audience with the major topics and issues regarding moving to and owning property in a non-US locationnon-US location.
• Seek a competent tax advisor to discuss the pspecifics of your particular situation.
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Audience?
• How many present today?• How many present today?• How many US Citizens?• How many Non-US Citizens?How many Non US Citizens?• How many MOVING to Mexico?• How many Investing in Mexican Property?
• How many Renting the Property?• How many Using the Property as 2nd home?
• Other?• Other?
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What am I?• Business or Vacation Traveler
• Short Term < 1 yearShort-Term - < 1 year
• Expatriate p• Long-Term - > 1 year • Moving to Mexico indefinitely or at least greater than 1
year.year.
• Expatriation • Permanent• Giving up US Citizenship.
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U.S. Short–Term Travelers
• Business expenses Sch A / Form 2106• Business expenses – Sch A / Form 2106• Personal expenses – Non-Deductible
• No Different than working in NEW Mexico or any other state.
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U.S. Taxable Income
Before we discuss Expatriate or Expatriation we Before we discuss Expatriate or Expatriation we must understand that the U.S. taxes all income from all sources. E.g.:
• Wages from Mexico or anywhere else, f S i l d• Interest from Switzerland
• Dividends from Germany• Rental Income from Africa• Rental Income from Africa• Etc….
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U.S. Long–Term Expatriatesg p• Use 3 things to avoid double taxation:
• Foreign Earned Income and Housing Exclusion
• Foreign Tax Credits
• TreatyTreaty
• Primarily for reduction of wage type income and l t d trelated taxes.
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U.S. Expatriation - PERMANENTp• Obtain Mexican citizenship
• Give up US citizenship
• IRC Section 877IRC Section 877• Mark to Market – all assets DEEMED sold and gain
calculated on day BEFORE expatriation.
• Form 8854 – Initial and Annual Expat Info Stmt• File 5 more years of returns
• CONTACT an Attorney to review in depth!!!!
S i T L T E i fi• Suggestion: Try Long-Term Expatriate first.
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Non-US Home Ownershipp
• So what?• So, what?
• Just like owning a US home, right?Just like owning a US home, right?
• Actually, YES…. Pretty similar!!!! Only a few nuances…
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Good News … Bad News …
• Bad news: U S is one of only countries that taxes • Bad news: U.S. is one of only countries that taxes their taxpayers on all Worldwide income earned.
• Good news: Worldwide expenses and losses are often deductible – especially for real property.
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Itemized Deductions
• MX Mortgage Interest is deductible on Sch A• MX Mortgage Interest is deductible on Sch A
• MX Real estate taxes are deductible on Sch AMX Real estate taxes are deductible on Sch A
• BUT Mortgage Interest has limits (just like a US home):• Can only deduct Main and 2nd Home• Debt limited to $1 MillionDebt limited to $1 Million• Home Equity limited to $100,000• And the dreaded foreign mortgage gain (more later)
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Rental Propertyp y• Mortgage Interest = deductible (and maybe even Section 469(j))
• Real Estate Taxes = deductible
• MX Income Taxes = deductible (generally on Form 1116)
• Insurance = deductible
• Repairs and Maintenance = deductiblep
• Trips to maintain and repair = deductible
• Depreciation
• Just about everything else deductible on Sch E
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Depreciationp
• Loss of value due to time• Loss of value due to time.
• Straight line over 40 yearsStraight line over 40 years
• Depreciation Recapture at time of sale or disposition
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Passive Activity Lossesy
• Rental losses can be used to offset other income• Rental losses can be used to offset other income.
• However losses are limited.However losses are limited.• $25,000 per year• Phased out at $150K AGI
• Sale of property frees up unused losses
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Personal USE
• If you decide to rent the property AND use it for • If you decide to rent the property AND use it for personal use, be sure to track your days.
• Total days available for rent• Total days rented• Total days used for personal use• Total days used for personal use
• Unless you are cleaning and repairing ….
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Exchange Ratesg• US Return denominated in US dollars
• All payments and receipts must be exchanged to US dollars for inclusion on your return.
• Technically, should be exchanged on date of transaction.
i ll h d i h f h • Practically, exchanged using average exchange rate for the entire year.
• www.Oanda.com (historical rates)
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Foreign Mortgage Gaing g g• In a word - Yuck!!!!
• Occurs when MX Mortgage is “substantially” bought down (i.e. paid off…)
• Calculate the sales price by multiplying the mortgage times exchange rate on date mortgage taken.
• Calculate basis by multiplying each mortgage payment y p y g g g p ytimes exchange rate on date payment made.
• Difference between SP and Cost = Gain or Loss
• Gains are taxable.• Losses are NOT deductible
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Qualified Business UnitQ
• A way around the Foreign Mortgage Gain• A way around the Foreign Mortgage Gain
• Basically – adjust the depreciable value every year Basically adjust the depreciable value every year AND note that the asset is a “QBU” on the return.
• Risky – only Ernst and Young LLP uses this approach.
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Incorporate the Rental?p• IRS considers corporations, partnerships, etc as
separate tax entities which require their own tax separate tax entities which require their own tax return filings.
• Form 5471 – Mexico Corp with US individual investor
• Form 8858 – Foreign Disregarded Entity
• Form 8865 – Foreign Partnership
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Foreign Bank Account Returng• Likely require a Mexico Bank Account
• Simple ownership with less than $10K requires Check Box on bottom of Sch B
• If aggregate value of all non-US bank accounts exceed $10K at any time during year = required filing.
• Form TDF 90-22.1
• Due June 30th – NO extensions
• Failure to file results in penalties as much as jail time…p j
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Health Care Law• ALL Corporate tax issues, except:
• Adoption credit increasedAdoption credit increased• Tax Free Reimbursements – Over Counter Drugs
• Individual taxpayers to feel effect through corporations passing the cost down and changes, like:like:• Increase time children remain on parents plan• Reporting of insurance on Form W-2• Annual Fees for Branded Rx Co’s• Tax Breaks eliminated for Health Orgs
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Closingg• Although complicated and confusing for the average
taxpayer, this is common practice for a competent tax taxpayer, this is common practice for a competent tax advisor.
F th i ht t d i d ith th i ht l i • For the right tax advisor and with the right planning, none of this presented information is troubling.
• Best advice is to seek a competent International Tax Consultant to review your specific case in detail PRIOR to year end.to year end.
• Historian or Consultant?
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QUESTIONS Q
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What is G E M M S ???
Expatriate / Inpatriate:
• Tax,Tax,
• Payroll, and
• Human Resource Solutions
[email protected] (678) 625-7641
www. .us Global Executive ManageMent Solutions