Tax reporting rules for Australian property owners

Published on November 13, 2023
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

Do you need to tell the IRS About Your Australian property?

Yes. If you’re a U.S. citizen or permanent resident who owns property in Australia, you’ve got to keep the IRS in the loop. It doesn’t matter if your property is a cozy home, a bustling commercial space, or a rental unit that’s not even bringing in a dime. The IRS wants to know about it.

What the IRS expects from you

The IRS is pretty clear about this: if you’re a U.S. person, which includes citizens and green card holders, you need to disclose your foreign assets. And yes, that includes that beach house in Sydney or that apartment in Melbourne. The paperwork you’ll need is Form 8938, also known as the Statement of Specified Foreign Financial Assets. Forget to file it, and you could be looking at some hefty fines.

Here’s your DIY checklist for IRS reporting:

  • Identify Your Property Type: Is it a home where you hang your hat, a commercial space, or a rental property?
  • Figure Out Its Value: Convert the property’s fair market value into U.S. dollars.
  • Fill Out Form 8938: Make sure this form is part of your yearly tax filing. Thinking of skipping it? The IRS has a menu of penalties, ranging from financial fines to legal consequences.

Got an Australian bank account linked to your property? You might also need to file FinCEN Form 114, commonly known as the FBAR.

Must-have forms for US expats with Australian properties

Wondering about the paperwork? Generally, this is the list you’ll want to take note of. However, cases will vary.

  • Form 1040 – Your Starting Point

First things first, you’ll need to fill out Form 1040. This is your go-to for reporting all your income, including any bucks you’ve made from your Australian property. 

  • Form 1116 – Foreign Tax Credit

Paid taxes to the Australian Tax Office? Don’t let that money go to waste. Use Form 1116 to claim those payments as a credit on your U.S. tax return. 

  • Form 2555 – Foreign Earned Income Exclusion

If you’re earning income in Australia, you might be able to exclude some of it from your U.S. taxes. Form 2555 is your ticket to doing just that. 

  • Form 8938 – Statement of Foreign Financial Assets

Own property in Australia? You’ll need Form 8938 to report it. This form is all about laying out your foreign financial assets, and yes, that includes Australian real estate.

  • Schedule E – Supplemental Income and Loss

If you’re renting out your Australian property, Schedule E is where you spill the details. From rental income to expenses, this form captures it all.

  • FinCEN Form 114 – FBAR, The Bank Account 

Got an Australian bank account tied to your property? Then you’ll need to file FinCEN Form 114, commonly known as FBAR. This form keeps track of your foreign financial interests.

  • Form 3520 – Foreign Trusts and Gifts

If your Australian property is tucked away in a foreign trust, you’ll need Form 3520. This form is all about reporting transactions with foreign trusts and any large gifts you’ve received.

Estate planning is not just about paperwork, it's your financial safety net

If you’re living the expat life with property in Australia, you need to think about estate planning. U.S. law requires you to report your global assets, including any Australian real estate. You’ll probably need to file Form 8938 if your foreign holdings go beyond certain financial limits, which vary based on where you live and how you file your taxes.

Not reporting your assets isn’t just breaking the rules; it’s putting your financial future at risk. So, it’s not just about ticking boxes; it’s about securing your financial legacy. That’s why it’s crucial to talk to a tax pro who knows the ins and outs of the U.S.-Australia tax treaty.

What you need to know about reporting Australian rental income

Earning some cash from renting out your Australian property? You’ve got to report that as foreign income on your U.S. tax return. You might also be eligible for certain tax breaks, like deductions for property taxes or depreciation. You’ll detail this income on Schedule E of your tax return. And if you ever decide to sell the property, don’t forget to report any profits.

Both the U.S. and Australia have a tax agreement that could influence how you handle these taxes. Tax laws are always changing. So, for personalized advice that fits your situation, it’s smart to consult a tax expert.

Sweet tax deductions for your Australian property

Got a piece of the Australian dream in the form of real estate? Well, you’re in luck! Australia’s tax system lets you write off a bunch of expenses. We’re talking about mortgage payments, property taxes, and even the wear and tear on your property over time. These deductions can be a game-changer, reducing your taxable income and maybe even fattening up your tax refund

Also, if you’re using a slice of your Aussie home to make some extra cash—like renting out a room or setting up a home office—you could be eligible for tax credits. The catch? That room or space has to be dedicated solely to your money-making activities. You can claim for the utilities used in that room, your work-related phone bills, and even the depreciation of your office gadgets.

The basics of the US-Australia tax treaty

The U.S. and Australia are pretty chummy when it comes to taxes. They’ve got a treaty that helps you avoid being taxed twice and lays down the rules for your tax duties. If you’re raking in rental income from your property, you can deduct those earnings and related expenses. But be careful; some costs are off-limits for deductions. We’re talking about the initial cost of buying the property, the stamp duty, legal fees, and any inspection costs.

Tax duties in the US and Australia

When living the expat life in Australia, you’ll need to brace yourself for tax obligations in not just one, but two countries. Yep, you read that right. Each country has its own set of rules, forms, and deadlines. For example, Australia’s tax year wraps up on June 30, while the U.S. sticks to the calendar year. The U.S.-Australia tax treaty is your best friend here, helping you dodge the bullet of double taxation and guiding you through your tax responsibilities.

  • Tax Year: Australia runs from July 1 to June 30; the U.S. follows the calendar year.
  • Tax Rates: These can shift based on where you live and how much you make.
  • Dual Reporting: You’ve got to report to both the IRS and the Australian Taxation Office, but tax credits can ease the burden.

Tax perks for your Australian property

Own property in Australia? Good news! You can claim a variety of deductions, from your mortgage payments to property taxes and even the cost of depreciation. But that’s not all. If you’re using part of your property to make some dough—like renting out a room—you’re also eligible for tax credits.

You can even add more items to your deduction list, such as the cost of maintaining the property, insurance premiums, and property management fees. Done some upgrades like a kitchen revamp or solar panel installation? You can usually spread these costs over several years as depreciation.

Ever-changing fair market value

Figuring out the fair market value (FMV) of your Australian property isn’t a one-and-done deal. It’s an ongoing process influenced by factors like location, market trends, and any renovations you’ve made. While local government bodies in Australia often do yearly valuations, it’s smart to get an independent appraisal, especially if you’re thinking of selling or refinancing.

Special tax rules

Tax matters can get a bit more complicated when you add special rules to the mix. Want to claim depreciation on your property? You’ll need to be on top of your record-keeping game. What if your property isn’t generating any rental income? In that case, you’re usually out of luck for most deductions. But remember, you still have to report the property and any gains or losses if you sell it.

What's at risk if you don't report properly?

If you’re a U.S. expat with property in Australia, you’ve got to be on your toes when it comes to reporting it on your U.S. tax returns. The IRS isn’t playing around; they require all U.S. citizens and resident aliens to report worldwide income. Slip up, and you could be looking at some serious financial fallout.

The IRS has a whole toolkit of penalties, ranging from fees for late filing and payment to, in extreme cases, criminal charges.

Want to steer clear of the penalties? Here’s your game plan:

  • File On Time: Living abroad gives you an extra 2 months, moving your deadline to June 17 for the current tax year.
  • Full Disclosure: Report all income, including what you earn from your Australian property.
  • Use Your Perks: Don’t forget to claim foreign earned income exclusion and foreign tax credits.
  • Keep Records: Document all property-related financial transactions meticulously.

When to dial an expert

Tax laws are always changing. If you’ve got multiple income streams or several Australian properties, it might be time to call in a pro. They can help you wade through deductions, credits, and liabilities without breaking a sweat.

Facing an audit or other legal challenges? This is no DIY territory. Expert advice can be a game-changer in understanding your rights and responsibilities and making sure you’ve got all your paperwork in order.

If you’re not up-to-date or unsure how the latest tweaks affect your Australian property, it’s time to consult an expert.

By being proactive and informed, you’re not just dodging penalties; you’re making smart choices that could improve your financial standing in relation to your Australian property.

The information provided herein is for general informational purposes only and should not be considered professional advice. While we aim to provide helpful and accurate information, we make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained here or linked to from this material.

Always get professional advice from a US international tax specialist.