UK citizen Claiming back withheld tax from US Timeshare rental

[janner66]

What is the name of your state (only U.S. law)? Las Vegas,Nevada

Hello everyone,

Thank you for accepting my registration. I'm hoping someone can help me with some advice on filling out some tax forms please?

I am a UK citizen who owns a timeshare in Las Vegas. In 2016 I successfully rented out my timeshare. My partner fell long term ill not long after we purchased it in 2010 so we have never actually used it and it was becoming a bit of a financial burden on us so I was happy when the resort managed to rent it out on our behalf.

I recently received a form 1042-S 2016 which states a gross income of 980, a tax rate of 30% and total withholding credit of 294. The income code was 50.

I emailed the resort and they told me that the Week was rented 7 nights at the rate of $140.00 a night. The total rental amount was $980.00 after removing the 30% commission, 30% nonresident tax and 8% travel agency fee, applied $313.60 toward 2017 maintenance fees as owner requested .

This is where my investigations have got me so far.

I understand I need to apply for a new ITIN number on form W-7.

I need to fill out a form 1040NR.

I need to fill out a form Schedule E (form 1040) and post them all off together.

I'm just having a bit of trouble filling out forms 1040NR and schedule E.

On form 1040NR what do I need to put in the section "Income effectively connected with US Trade/business" considering the info above and do I need to attach form 1099-R (if tax was withheld).

On Form Schedule E do I enter 980 in section "Income" - "Rents Received" ?
Do I need to put anything in Expenses? Obviously the idea is to claim back some or preferably all of the withheld credit of 294.

Many thanks for your help. If I can get my head around what to do then I can apply every year and hopefully claim some extra money from the withheld credit.

https://www.irs.gov/pub/irs-pdf/f1099r.pdf

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

https://www.irs.gov/pub/irs-pdf/fw7.pdf

 

[LdiJ]

What is the name of your state (only U.S. law)? Las Vegas,Nevada

Hello everyone,

Thank you for accepting my registration. I'm hoping someone can help me with some advice on filling out some tax forms please?

I am a UK citizen who owns a timeshare in Las Vegas. In 2016 I successfully rented out my timeshare. My partner fell long term ill not long after we purchased it in 2010 so we have never actually used it and it was becoming a bit of a financial burden on us so I was happy when the resort managed to rent it out on our behalf.

I recently received a form 1042-S 2016 which states a gross income of 980, a tax rate of 30% and total withholding credit of 294. The income code was 50.

I emailed the resort and they told me that the Week was rented 7 nights at the rate of $140.00 a night. The total rental amount was $980.00 after removing the 30% commission, 30% nonresident tax and 8% travel agency fee, applied $313.60 toward 2017 maintenance fees as owner requested .

This is where my investigations have got me so far.

I understand I need to apply for a new ITIN number on form W-7.

I need to fill out a form 1040NR.

I need to fill out a form Schedule E (form 1040) and post them all off together.

I'm just having a bit of trouble filling out forms 1040NR and schedule E.

On form 1040NR what do I need to put in the section "Income effectively connected with US Trade/business" considering the info above and do I need to attach form 1099-R (if tax was withheld).

On Form Schedule E do I enter 980 in section "Income" - "Rents Received" ?
Do I need to put anything in Expenses? Obviously the idea is to claim back some or preferably all of the withheld credit of 294.

Many thanks for your help. If I can get my head around what to do then I can apply every year and hopefully claim some extra money from the withheld credit.

https://www.irs.gov/pub/irs-pdf/f1099r.pdf

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

https://www.irs.gov/pub/irs-pdf/fw7.pdf

You would first fill out Schedule E, thoroughly. The amount of rent is the gross rent. The commission that you paid to the resort is an expense. The amount that went towards your maintenance fees is also an expense. If you owe the resort more maintenance fees then you would put the total amount of the maintenance fees as an expense. The net amount of income from Schedule E, after expenses, gets put on line 18 of the 1040NR.

 

[Taxing Matters]

What is the name of your state (only U.S. law)? Las Vegas,Nevada

Hello everyone,

On form 1040NR what do I need to put in the section "Income effectively connected with US Trade/business" considering the info above and do I need to attach form 1099-R (if tax was withheld).

This was passive rental income, not an active trade or business. You may, however, treat it as effectively connected income by making an election under Internal Revenue Code (IRC) section 871. If you do that, it has several consequences. First, the income is taxed at the progressive rates that apply to the income of citizens/residents. Second, you are eligible to deduct your expenses with respect to the rental. If you do not make the election you are taxed on the income at a flat 30% rate and you are not eligible to deduct the expenses. For more information on the election, see the IRS page on the 871 election here:

https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-real-property-located-in-the-us

So unless you make that election or you had some other business activity in the U.S. you’d leave the effectively connected trade or business income blank.

A form 1099-R is for pension/retirement plan distributions. You report that on line 16 if it was an IRA or line 17 if it was a pension, annuity or other plan. You do not generally need to attach a Form 1099-R unless it shows tax withheld. If you received a Form 1099-R with respect to the rental then something is wrong. The withholding for the rental should have been shown on the Form 1042-S.

On Form Schedule E do I enter 980 in section "Income" - "Rents Received" ?

Yes, $980 is the rent received.

Do I need to put anything in Expenses? Obviously the idea is to claim back some or preferably all of the withheld credit of 294.

It doesn’t sound like you had rental related expenses other than the maintenance fees. In order to deduct those fees you must make the election I mentioned above.

If you do NOT make the election then you use the Schedule NEC to compute the tax on the rental income at 30%.

 

[Taxing Matters]

You would first fill out Schedule E, thoroughly. The amount of rent is the gross rent. The commission that you paid to the resort is an expense. The amount that went towards your maintenance fees is also an expense. If you owe the resort more maintenance fees then you would put the total amount of the maintenance fees as an expense. The net amount of income from Schedule E, after expenses, gets put on line 18 of the 1040NR.

The commission the time share company deducted already to reach the $980 that the OP received. That $980 is treated as the gross rent in this instance so the OP cannot deduct that again as an expense. The maintenance fees are an expense but may only be deducted if the OP makes the section 871 election.

 

[LdiJ]

The commission the time share company deducted already to reach the $980 that the OP received. That $980 is treated as the gross rent in this instance so the OP cannot deduct that again as an expense. The maintenance fees are an expense but may only be deducted if the OP makes the section 871 election.

That is not what she said. She said that it was rented for 7 nights at 140.00 per night which adds up to 980.00, and that taxes, commission and maintenance fees were deducted from that, giving her net as zero.

I agree that she should make the 871 election.

 

[Taxing Matters]

That is not what she said. She said that it was rented for 7 nights at 140.00 per night which adds up to 980.00, and that taxes, commission and maintenance fees were deducted from that, giving her net as zero.

I agree that she should make the 871 election.

Ah, when the OP stated: “The total rental amount was $980.00 after removing the 30% commission,...” I took that to mean the $980 was after the commission. If the $980 was before the commission, then I agree commission is deductible from the $980 gross rent.

 

[janner66]

Sorry for my late reply. I was expecting an email if there was a response and just noticed the replies.

Thank you ever so much for taking the time to respond. Your answers have been really useful. I will investigate further into the 871 election. Thanks.

It's clear now that I do not need to fill in a form 1099-R. Thanks.

Thanks LdiJ and Taxing Matters

 

[janner66]

I have read the 871 d and that makes sense thanks.

However, hopefully some time down the line my partner may become well again and we might be in a position to use the timeshare. The 871 d says that once I make this choice it stays in effect for all later tax years unless I revoke it.

If we do use it I would suspect it would be once every other year at most.

Would I need to keep applying and then revoking depending on whether I was using the timeshare or not? So the year I used the timeshare I wouldn't be able to claim any money back as it would be taxed 30% so I would need to send in a form 1040X to revoke the choice for that year but then start the process again the year I didn't use it? Have I got that correct please?

The information below is from the webpage:

Revoking the choice. You can revoke the choice without IRS approval by filing Form 1040X, Amended U.S. Individual Income Tax Return, for the year you made the choice and for later tax years. You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. If this time period has expired for the year of choice, you cannot revoke the choice for that year. You may revoke the choice for later tax years only if you have IRS approval. For information on how to get IRS approval, see Regulation section 1.871–10(d)(2).

Many Thanks

 

[LdiJ]

I have read the 871 d and that makes sense thanks.

However, hopefully some time down the line my partner may become well again and we might be in a position to use the timeshare. The 871 d says that once I make this choice it stays in effect for all later tax years unless I revoke it.

If we do use it I would suspect it would be once every other year at most.

Would I need to keep applying and then revoking depending on whether I was using the timeshare or not? So the year I used the timeshare I wouldn't be able to claim any money back as it would be taxed 30% so I would need to send in a form 1040X to revoke the choice for that year but then start the process again the year I didn't use it? Have I got that correct please?

The information below is from the webpage:

Revoking the choice. You can revoke the choice without IRS approval by filing Form 1040X, Amended U.S. Individual Income Tax Return, for the year you made the choice and for later tax years. You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. If this time period has expired for the year of choice, you cannot revoke the choice for that year. You may revoke the choice for later tax years only if you have IRS approval. For information on how to get IRS approval, see Regulation section 1.871–10(d)(2).

Many Thanks

If you use the timeshare, you will not have any income from the timeshare and therefore no income tax would be withheld. Therefore, there would be no reason for you to file a US tax return. Therefore no reason to be concerned about the election.

 

[janner66]

Thanks LdiJ

 

[janner66]

I'm trying to post a link to the form I filled in but it's not getting approved by mods

3.RENTS RECEIVED 980
8. COMMISSIONS 294
11. MANAGEMENT FEES 379
16. TAXES 294
19 OTHER 79 TRAVEL AGENCY FEES
20 TOTAL EXPENSES 1045
21 SUBTRACT 20 from 3 = -65
23a = 980
23e = 1045
25 = 65
26 = 65

Does this look okay?

Do I need to fill out form 6198 because I have made a loss?
Do I need to include emails from management resorts showing the taxes,fees and income?

Thanks again

 

[LdiJ]

I'm trying to post a link to the form I filled in but it's not getting approved by mods

3.RENTS RECEIVED 980
8. COMMISSIONS 294
11. MANAGEMENT FEES 379
16. TAXES 294
19 OTHER 79 TRAVEL AGENCY FEES
20 TOTAL EXPENSES 1045
21 SUBTRACT 20 from 3 = -65
23a = 980
23e = 1045
25 = 65
26 = 65

Does this look okay?



Do I need to fill out form 6198 because I have made a loss?
Do I need to include emails from management resorts showing the taxes,fees and income?

Thanks again

No, its not ok. You deducted the withholding tax and that is not an expense. The expense category "taxes" is primarily for property taxes. Take out the taxes and you will have a profit.

 

[janner66]

No, its not ok. You deducted the withholding tax and that is not an expense. The expense category "taxes" is primarily for property taxes. Take out the taxes and you will have a profit.

Thank you ever so much for your help. I really appreciate it. I will send the forms off and see how I get on.
This site has been so helpful. It has really helped me sort out this problem when I really didn't think I would at the start of the process.
We are very unlikely to use the timeshare due to my partner's poor health so it was really important I got this process worked out.
Thanks LdiJ I hope you are blessed for the time and effort you have so kindly spared.

 

[LdiJ]

Thank you ever so much for your help. I really appreciate it. I will send the forms off and see how I get on.
This site has been so helpful. It has really helped me sort out this problem when I really didn't think I would at the start of the process.
We are very unlikely to use the timeshare due to my partner's poor health so it was really important I got this process worked out.
Thanks LdiJ I hope you are blessed for the time and effort you have so kindly spared.

You are most welcome.

 

[janner66]

I have filled out all the forms and they are ready to post off. I just have one more question if you don't mind please as I would like to understand the process fully.

I removed the witholding tax and I now have a positive income of 229. If the amount of tax that was withheld was 294 then will they deduct 294 from 229 and I receive the difference?

If so is there anything else I can put on form Schedule E to bring the net amount further towards zero? i.e I have heard people mention depreciation which is on the form.

Thanks.