us taxpayers moving to mexico.ppt - taxconnections...itemized deductions • mx mortgage interest is...

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

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…

www. .us Global Executive ManageMent Solutions

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.


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?


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.


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.


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….


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.


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.


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…


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.


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)


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


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


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


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 ….


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)


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


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.


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


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


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


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?


QUESTIONS Q


What is G E M M S ???

Expatriate / Inpatriate:

• Tax,Tax,

• Payroll, and

• Human Resource Solutions

[email protected] (678) 625-7641


us taxpayers moving to mexico.ppt - taxconnections...itemized deductions • mx mortgage interest is...

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