US Expat tax deductions that you can benefit from!
If you are a US expat living in a foreign country, the US law requires you to file your US tax returns on the income that you earn abroad. Generally, US expats are allowed to benefit from the same tax deductions that they could have benefited from, if they resided in the US only.
However, there’s a condition attached to the deductions you can make. The thing is that you can only subtract those deductions from your income that you are reporting as part of your tax return. Thus, if you want to exempt your foreign earned income or housing expenses, any amount of money that would be charged against your foreign income won’t be eligible for a deduction.
However, if you have an item to report that cannot be directly attributed to any particular source of income, then you can definitely be eligible to apply for a deduction for that particular item. These items are mentioned in the list below for your ease:
- Personal exemptions
- Real estate taxes on your personal residence
- Alimony payments
- Medical expenses
- Mortgage interest
- Qualified retirement contributions
- Charitable contributions
Deduction for property taxes that you pay abroad
Being a resident alien in a foreign country, you might have to pay real property taxes to that country. However, you can save tax by filing for a deduction of the amount that you pay as property tax to the foreign country you are living in. If you are wondering as to what classifies as real property; real property encompasses land, buildings, and anything related to a piece of land that you own.
If you happen to have a business in a foreign country, real property in your case would refer to your warehouses, offices, factories, or any other building that you might have for your business purpose. However, equipment that is not affixed to a piece of land doesn’t qualify as real property. There’s a catch here as well, though, as you can only deduct those personal taxes that you incur for generating income, or for paying business expenses.
Deductions for IRA
You can also deduct the contributions you make to Roth IRA or to traditional IRA, but only to a limited extent. You can deduct $5000 only, and $6000, in case you are 50 years or older. In addition, the deduction is restricted to the compensation, which is a part of your gross income.
Exemption for nonresident spouse and your dependents
You can be eligible to apply for deduction under this area if your spouse is not a dependent of any US taxpayer, and has no gross income to pertinent for US taxes. You can further file for returns for your qualified dependents too, however, they can only qualify if they have been a US citizen or national, a US resident alien, or residents of either Canada or Mexico, for a part of your current tax year.
Deduction for charity
Only the charity that you make to a US charitable organization can be applied for deduction. The organization can further pass on its funds to a foreign charitable organization, but has to be a US charitable organization in nature.
Did you find this article helpful? Please let us know through your comments below. If you have any queries regarding the deductions you can apply for, feel free to contact us.