Renounced and filing last return - do I pro-rate deductions/ depreciation

Hi everyone

Another possibly dim question from me as I prepare my final tax return. I renounced in mid-march 2016 and I'm wondering whether I should pro-rate my standard deduction (i.e. divide the $6300 by 12 and multiply by 2.5). Same question for the depreciation value I'm claiming on our rental flat. Any ideas?

Thanks!

Just to answer my own question - after working through my 1040 I realised that yes, you pro-rate everything otherwise the numbers end up looking really wacky!

I filed my last return already and have confirmation it's been filed and processed.

To answer your questions here is what I did. I did my own filing

1. Standard Deduction: I understood that the standard deduction is not available to people who have been a non resident alien for some part of the year. So no standard deduction at all, even pro-rate. you are allowed the full personal exemption and allowable deductions.

2. Depreciation on rental: you are allowed to claim the full. or rather I claimed the full for the year.

However very few people ever hear anything back when they file these last returns and maybe someone has pro-rate successfully. just telling you what I did

Just make a good faith effort. Remember you are filing a full year 2016 return, one part of the year as a citizen (resident for tax purposes) and one part as a non citizen technically a non resident alien. so it should be dual status. You end the year as a non-resident alien on December 31st 2016 so the form 1040NR is your main tax return and the form 1040 is your statement for the part of the year you were a citizen.

Hope this helps and good luck.

also while we are on the subject of pro-rota, if you claim the FEIE, you do pro-rota that for the part of the year only that you were a citizen and eligible to claim the FEIE. I believe there is instructions how to do the calculation on the form or form instructions, however come back and ask if you get stuck. and I will look it up on mine.

Hi everyone

Another possibly dim question from me as I prepare my final tax return. I renounced in mid-march 2016 and I'm wondering whether I should pro-rate my standard deduction (i.e. divide the $6300 by 12 and multiply by 2.5). Same question for the depreciation value I'm claiming on our rental flat. Any ideas?

Thanks!

A dual status taxpayer is only allowed to itemise. Depreciation is pro-rata on a daily basis. 

About depreciation, where exactly does it say in publications that one can not take a full year depreciation in a dual status year? It states a lot of rules in publications but not that.

I looked up my notes and realise i did call the IRS on this and was told that a person filing for a full calendar year can depreciation for the full year. A short year is when a property starts service or is disposed of within the year. We have to file a full calendar year for 2016. Only people who die file a short year.

What I have learned throughout this entire mess is that rules are how you interpret them and the IRS does not even know the rules themselves in many cases. Very few people ever hear anything back and a good faith effort is good enough.

Thanks for the replies

I have anyway just pro-rated the depreciation and it works out fine (i.e. I have a $0 liability at the end of the 1040). So I'll just stick with that, I think.

And yes, I also read after my original post that I can't take the standard deduction. But, again, it works out fine just taking the smaller amount of itemised deductions.

I haven't looked at the 1040NR yet, but am assuming that'll be easy-peasy as it's just a bunch of 0s with the 1040 added as a 'statement' (which itself will have about a dozen statements and sub-forms of its own). It is so completely preposterous that I have to spend many evenings of my life and lots and lots of forms just to demonstrate that I owe the IRS $0. The process is nothing if not a robust reassurance that renouncing was the right choice for me!

I had so many carry over tax credits when I renounced that I wasn't going to owe anything whether i had a standard deduction or not. i didn't take it because of what i read in the publications.

The 1040NR for the final year is one of those forms that appears to be a case of who does your tax return or how you interpret the rules and I have seen it submitted different ways across many forums. there is just no logic to most of this,

Remember your form 1040NR is your main tax return for the entire year and the form 1040 is the statement. There are some that say that the numbers from the form 1040 statement are to be ported over to the form 1040NR (not the wages exempt from FEIE. that never gets ported over) but everything else. Some have done this and some have just submitted the zero form 1040NR
and I know some who submitted some very messy final year filings. Yet I see extremely few cases of anyone ever hearing back anything.

All I know is that the IRS were happy with my final return. I filed 6 months ago. I rang them 4 months after I filed and they were able to tell me received and processed.

Also you mentioned "itemised deductions"
take care with that.
To be safe, I didn't claim any. i understood the rules to be that generally only itemized deductions related to a U.S. trade or business will be allowed
I reread the rules several times and was never certain so left it out
Maybe someone else will know.

I'm working off previous year's tax returns (completed by a professional, and I assume processed without any issue by the IRS because I haven't heard otherwise) re. what deductions I can take. But also like you I have so many carry over foreign tax credits that it's all a bit irrelevant.

Anyway - thanks for all your replies! It's heartening to know someone else has been through a similar situation and come out the other side unscathed!

yes I had the same mindset as you, i filed using my previous returns as a guide also done by professionals but the dual status return is not going to be 100% like your other returns. the form 1040 will be similar in regards to how income is reported but there are many rules, for example, one can't claim the standard deduction, or use the "head of household" tax table or file a joint return. there are some other credits that can't be taken.

you have to write dual status return (form 1040nr) and dual status statement (form 1040) on top of the forms. The FEIE is pro-rated.
So if you are on top of the differences, you will be fine. My past returns only claimed the standard deduction so itemised deductions were not something I could work off from.

I had a feeling from reading publications that maybe only the mortgage interest for the part of the year I was a Citizen (considered a resident for tax) was allowed. I didn't claim it to be safe.

And yes it is possible to come out OK. and if you have no ties or assets in the US, there is very little to worry about anyway.

Ah, ok, so your comment that you didn't pro-rate your exemptions led me to actually properly read the instructions on exemptions for dual-status returns. Turns out I don't need to bother with any deductions or even my foreign tax credit carry over as my income (both earned and passive) for the 76 days I was a citizen is less than my exemptions.

Phew! Thanks for that - it's saved me the headache of filling in a bunch of unnecessary forms.

The thing I learned is that citizenship does not come into it (except for the form 8854). You are either a US tax resident or not. If you are a US citizen, you are automatically a tax resident of the USA.

Non resident aliens are not entitled to the same deductions as US citizens and resident aliens. I understood the rules to be that generally only itemized deductions related to a U.S. trade or business will be allowed for non resident aliens. After my renunciation date, this would have been the case.

Prior to renunciation, I didn’t have an example to work from where I could feel confident that I was claiming the correct deductions. I had a feeling maybe mortgage interest was the only one. And I didn’t need that to cancel out any tax owing so played it safe.

And another thing to remember for a dual status return when one ends the year as a non citizen, non resident is that one is not filing a form 1040 as the main tax return. One is filing a form 1040NR and the 1040 is a statement. One is told “Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040, U.S. Individual Income Tax Return as the statement, but be sure to mark "Dual-Status Statement" across the top.”