ireland132

I have been working in the US on an H1B visa since September 2003. Just had my tax return meeting with an accountant today. He says I need to declare income from rental of my UK property on my US tax return.

Anyone else been in similar situation?

dbj1000

That's correct if you were "resident for tax purposes" in the US in 2003. However, if you were only in the US from September 2003, you do not automatically meet the criteria for tax residency.

I'm not an expert, but I worry that neither is your accountant from the sounds of things. You need to check out the IRS website to get an idea of whether you were resident for tax (the Substantial Presence test):

Substantial Presence Test

If you were not resident last year then you don't report foreign income, as far as I know. However, you get none of the tax breaks for a resident alien. By contrast, if you're resident for tax purposes you should be able to declare your foreign income but then file for Foreign Income Exemption due to the UK having a tax treaty with the US.

As I say, I'm no expert but have just gone through all this. My advice is that if you feel like you're being taxed twice, once in the UK and once here, your accountant has got it wrong and you need to find a CPA who knows international tax law.

Global Tax Network was recommended by someone on this board, and they seem great. They'll interview you over the phone, then you fill in a detailed interview online and they'll prepare your tax return. They're also pretty reasonably priced. I didn't use them! Instead I went through 3 weeks of hell with "H&R Block Premium" where I taught them about my tax rights and got the return prepared for free in the end!

Good luck. PM me if you need more info.

ireland132

I'll check this out in more detail.

As an H1B visa holder, are you a "resident alien"?

dbj1000

I suggest you read the link I posted regarding the "Substantial Presence Test".

If you meet that test you're a "Resident Alien" for tax purposes. If you don't, you're not. Regardless of visa status

ireland132

I've read that link and I am definitely do not meet the criteria. I therefore believe - as you stated - that my UK income should not be taxed in the US.

dunroving

Are you paying US income tax? It's my understanding that you should pay tax on any income, regardless of where you earned it. The double taxation treaty prevents you having to pay income tax twice (i.e., in the UK and also in the US), but I don't believe it exempts you from paying income tax. If you are earning income from renting a house you should declare it on your tax return.

Are you paying income tax in the UK (on your rental income)?

The transition period when you move from the UK to US (or vice versa) is a bit confusing, because the UK and US tax years do not coincide. However, one thing seems clear to me - you should be paying tax on your income somewhere....

All of this is from my recollection of going through the process a while back, it's not an expert opinion. I think your best bet is to hire a tax expert, as said earlier.

ireland132

Yes, I am paying US income tax and I fully understand that I have to pay income tax on all income earned. The question was never one of exemption.

I will be filling in a tax return in the UK which will ensure that my property rental income will be taxed in the UK. I was therefore questioning whether this income should be declared at all on the US tax return. I don't think it should.

dunroving

OK that makes it a bit clearer ("bit" meaning the situation is still confusing because of the split UK/US tax year).

If I were you, I'd find a tax expert who knows this situation, pay them to sort it out this year, and learn from what they tell you so you can do it for yourself aftef this year. Once you are resident in the US it should be simpler.

I *think* H&R Block have a special set of tax experts who deal with more complicated cases - they cost a bit more than your bog standard tax preparer, but I think it would be worth it this first year.

Ben

What dbj is telling you is correct. If you are still having problems, get in touch with your UK tax office as they are very good at helping with these things too. That is what we did for our first year here and they were the best help we have ever had.

And I would definitely stear clear of H & R Block. We have used them before and they really dont' know what they are talking about when you have something out of the ordinary.

When we have had complicated tax returns (we had one when we were moving state and buying a house half way through a tax year) then we have hunted around for an accountant who will give us a discount for being first time clients AND who knows the system very well.

dunroving

Don't H & R Block have a differents set of tax preparers, that cost more, for special cases? I thought somone posted on that recently. I agree that their bog standard people take a 4-hour course and then start preparing taxes, but I thought they had some more expert people for these situations?

ladyofthelake

I think you may be thinking of dbj1000, who, if you look nearer the top of the page said this: Seems paying more doesn't necessarily equate to better service .

dunroving

OK, missed that. Someone also posted on H&R Block Premium on another tax thread recently. They all start to run together!

dbj1000

That was probably me talking about H&R Block Premium before I actually used them.

What happened was that the Senior Tax Agent I had gave excellent service, seemed to know everything she needed to know to maximise my refund... and neglected to tell me that she had never dealt with anyone in my position before.

The result was a first attempt at my return which would have lost me around $5000 in lost refund and would have been completely incorrect.

I knew enough (luckily) about my tax status to know this was incorrect, and over the following weeks I rejected her next two drafts of my return until she produced one I was happy with.

The H&R Block approach still had its advantages. They promise that they'll get your return right or it's free... so mine was free. They sign the return and promise to defend it in front of the IRS if it's questioned, which is the main thing I wanted.

The downside - three weeks to prepare the return, endless hassle for me, an initial incorrect return which I would have submitted had I not known about my own tax situation, and a service which would have cost over $750 if I had had to pay for it.

On the strength of this I'd advise either a VERY good CPA who is prepared to guarantee that they know about Foreign Tax Status (I found two in my area on Google) or Global Tax Network, who I talked to on the phone and who know just what they're doing because they specialize in preparing tax returns for aliens like us!