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Taxes for US citizen owning apartment in Germany

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Does anyone have personal experience with this?

We are buying an apartment in germany as investment (husband german, me american) with the plan to move back to the US permanently. I know we will pay the investment as part of the US taxes, but what should be expected from the German taxes- will we be taxed twice on the income from the apartment?

 

Thank you for any advice or reference to where we can find more information regarding this particular situation  

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24 minutes ago, arico said:

Does anyone have personal experience with this?

We are buying an apartment in germany as investment (husband german, me american) with the plan to move back to the US permanently. I know we will pay the investment as part of the US taxes, but what should be expected from the German taxes- will we be taxed twice on the income from the apartment?

 

Thank you for any advice or reference to where we can find more information regarding this particular situation  

 

This might be helpful:

 

https://www.expattax.de/property-affect-taxes-germany/

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No, you won't be taxed twice as there is a treaty to avoid double taxation between the US and Germany

 

https://www.irs.gov/pub/irs-trty/germany.pdf

 

See Article 6 (income from immovable property).

 

The taxation rights lie with Germany. 

 

Quote

Income derived by a resident of a Contracting State from immovable (real) property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

 

My understanding is that you'd only have to pay taxes on the rental income as a resident in the States if the taxable amount in the States were higher than the German one. So if the tax owed to Germany were 5.000 euros and the tax owed to the US were 5.400 you would pay 5.000 to Germany and 400 to the US; if the tax owed to Germany were 5.000 euros and the tax owed to the US were 4.000 you would pay 5.000 to Germany and nothing to the US.

 

I would personally consider investing the US rather than Germany. Your tax affairs would be simpler if you limit your income to the US if you are going to live there.

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Second Smaugs advice. You will also have more flexible tenant protection laws to deal with.

 

Not to forget: it can be a royal pain in the ass to deal with property from afar let alone abroad. I do NOT recommend it if you can avoid it.

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Arico,

 

The simple answer:

 

You will need to file German tax return and pay German taxes on the rental income minus expenses.  If you are living in the US, you will file your German tax return as a non-resident/overseas taxpayer.  You will be taxed on ALL the rental income.  

 

If you are living in the US, you will file a schedule E with your US/1040 tax return claiming your rental income (from the German apartment) minus expense.  You will also file a Form 1116 (Foreign tax credit) with your 1040 and claim the taxes you paid on the German return.

 

Here's an example: 

  • Tax Year 2018 - you buy an apartment in 2018.  You would file a German tax return for tax year 2018 and pay whatever taxes you owe on the rental income minus the expense.  You would also file a US tax return for tax year 2018 and list the German rental income on your schedule E and pay whatever US taxes you owe based on the German rental income minus expenses.  The year in which you buy the apartment you will pay taxes (if there is a profit) in both Germany and the US. 
  • Tax Year 2019 - German tax return is the same as tax year 2018, pay whatever taxes you owe on the rental income minus the expenses.  For the US tax return you would file as you did in tax year 2018 AND file a Form 1116 (Foreign tax credit) listing the German taxes you paid on your 2018 return (you paid the 2018 German taxes in 2019, making them part of your 2019 return).  The Form 1116 credits your German taxes paid on your US tax return.  

Depending on your comfort level with US taxes, you might want to talk to an accountant.  Same for the German taxes.  

 

Shenandoah

 

.  

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