How to report income from rented out foreign property that was inherited?

[msugar2]

My father left me a condo worth more than 100K in another country and I rented it out. How to report both the property and the rental income? A step-by-step instruction applicable to TurboTax 2016 would be greatly appreciated.

[msugar2]

I'm still not sure how to proceed. Please see the questions I've added. Thank you.

[TurboTaxMonica1 · Accepted solution]

You will need to report three things:

1.    Rental Income

2.    Foreign Tax Paid on Rental Income, and

3.    Foreign Property Information Reporting on the T1135

Foreign Rental Income

First, complete the T776 Statement of Real Estate Rentals.

1.    Using the navigate menu up top, select Income > Rental Property

2.    Enter all relevant fields in the T776

NOTE: CRA will not allow you to file your return using NETFILE if the rental address doesn’t have a Canadian province and postal code entered.

As a workaround, we suggest that you enter the foreign address on the “Address” lines, and the foreign city and country in the “City” field. Finally, input your residential province and postal code in the corresponding province and postal code fields.

Foreign Tax Credit

1.    Select Find in the top right hand corner

2.    Type "foreign" and select Foreign Tax Credit

3.    Select Yes to the Foreign Taxes page. 

4.    Enter the country your foreign property is located

5.    In the section “Foreign real property income:”, enter the gross rental income amount, related expenses and the amount of foreign taxes you paid.

NOTE: The amount of income entered on the Foreign Tax Credit form will not add additional income to your return. It is needed, however, to properly calculate the foreign tax credit for the country you specified.

T1135

1.    Using the navigate menu up top, select Income > Other Income Sources > T1135

2.    Follow the prompts on the screen. 

NOTE: The T1135 is information reporting only. We recommend choosing the simplified method if your assets are over $100K but under $250K.

Again, you will need to enter the income corresponding to each of your foreign property. Income entered on the T1135 will not affect your income tax return.

Lastly, the T1135 needs to be filed separately from your income tax return. When you are ready to file, you will see an additional button to file your T1135 using CRA’s NETFILE service.

[soewitas]

For annual rental payment paid in advance (full year) and the period is straddle between two years.  I assume I will report the rental income using accrual method, meaning I will report income and expense just for the year I am filling out my taxes.  Am I correct?

[TurboTaxKim]

@soewitas,

Yes, you would report only the amounts of rental income which you actually received for the tax year in which you are filing.

For example: The rent was paid for the period Jun 1st to May 31 the following year. You would only claim the income for seven months - Jun to Dec. 

[irma200808]

@TurboTaxMonica1 

You said "Enter all relevant fields in the T776", and "In the section Foreign real property income: enter the gross rental income amount, related expenses and the amount of foreign taxes you paid."

Does this mean that we should enter rental related expenses (such as foreign tax paid, utilities, etc) on both form T776 and the foreign tax credit page? 

[soewitas1]

@TurboTaxMonica1 I followed your direction, but got stuck when entering FTC paid.  As you can see on below screenshot, the cell for real property income is grayed  out. 

Secondly, are below the place to put the FTC amount?

Thanks.

[Vikas1]

@TurboTaxMonica, @TurboTaxKim I have also run into same problem. Text box to enter real estate income is not enabled. 

[Vikas1]

I also tried the forms method i.e. update FTC through forms. Double clicking box in FTC form takes me to Foreign slip form and I cannot enter rent here because I have already added details in T776.

EDIT: I was able to get the form to enter FTC, but like mentioned in previous post on this thread the box to enter real estate income is not enabled.

[TurboTaxDeanna]

@Vikas1

To enable the rental income in the T776.

1. You must first select the checkboxes that apply to your situation. in the rental profile window in the EasyStep (rental income, rental expenses).
2. then, move forward to complete the process.

@irma200808

Yes, you will need to report three things:

1.    Rental Income and expenses on T776

2.    Foreign Tax Paid on Rental Income on FTC

3.    Foreign Property Information Reporting on the T1135