What are the US tax implications of buying and either selling or renting out land in another country?

Question

I have an opportunity to invest in some land in the Philippines, however, I am unsure what the effect would be on my US income tax if I sell land there or receive money for rents of the land. I am interested in finding out how the income would be classified and whether it is taxable in the US or not. Also, would the property itself be taxable on US returns?

Answer 1

Income and expenses would be taxable on US return on Schedule E. Selling the property would be subject to Capital Gains, either short- or long-term. IRS taxes your worldwide income, no matter where it is earned. Now if there were any taxes you had to pay to the Philippines on the income that you earned from the property there is a foreign tax credit that you claim on your US return, but it might not be a $ for $ credit, but it's better than no credit at all.

Answer 2

It would be exactly the same as if the land were in the US. As a US citizen or resident, your income is subject to US taxes regardless of where it is earned.

The only difference would be that if you paid any foreign income taxes, you'd get a credit for those on your US return.