I believe those deductions are *not* deductible in Italy.

But, this raises a more interesting point: are you sure they are legally deductible in the US? I always thought that only "earned income" was valid for tax-deductible contributions to IRAs/401k's, and that rental income is not considered earned income.

From a random website:

"...investment income such as that you earn from a rental property is generally not eligible for contribution to a tax-deductible IRA." ( http://homeguides.sfgate.com/rental-property-qualify-having-income-contribute-taxdeductible-ira-57105.html )

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10abuse

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Thanks for the information. We both work here now so we can still contribute to the IRA's. We are trying to figure out if it is worth keeping the rentals as this would be our source of income when in Italy as we are too young to retire and my husband although Italian knows how hard it is to make a living there. He is a musician here in the USA. If we are taxed on the full rental amount and not able to deduct management fees, prop taxes, Ins and repairs this will leave us with very little to live on after taxes.. I was hoping that we could deduct these expenses and pay taxes to Italy on the balance of the income. We both live a simple life, but want to travel while in Europe so we felt that with 2,500 euro a month we could live a decent life....

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00abuse

The most sensible thing to do (probably should have done this anyway...) would be to set up an LLC or some other corporate entity and transfer the ownership of all the rental properties to it. Then you can take the profits after expenses as income. Much, much, cleaner that way.

Even if you don't do that, I would expect that those amounts would be deductible from income prior to calculating your tax liability. But, these are really questions for an Italian accountant ("commercialista").

However, do keep in mind: Italy has a "wealth tax" ("IVAFE") that is calculated on the value of all your foreign assets - in this case, the value of those rental properties - and must be paid annually by any citizen who is tax-resident (meaning you live there more than 182 days per year). If I recall correctly, the current amount is 0.20% of the asset value.

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10abuse

Thank you, Much appreciated. I will follow up with a tax expert here in the USA and my husband will be in Liguria next month so he can follow up there.

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00abuse