QUESTION
Do I have to report liabilities when reporting foreign assets?
Asked on Mar 19th, 2022 on Taxation - Michigan
More details to this question:
I am living in the U.S. and have a property in a foreign country. I plan to lease my property, where I will be receiving a security deposit called "key money." This key money is large in value; it will be roughly 50% of the value of my property. Because this would be a security deposit, my understanding is that this money would be a liability, correct? In that case, do I have to report the key money I receive as a foreign asset?
1 ANSWER
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I am not an expert on international taxation or accounting, so my comment is only directed at US/Michigan law as I know it.
The key money is not income. The money is not yours, it is a security deposit and the property of the tenant, possibly to be returned when the lease is over. It only becomes yours under the language of the lease.
From an accounting standpoint, since you are holding money that isn't yours, it can be considered a liability, but, if it is, it offset by the asset that you are holding, the money itself.
While it is always safest to declare these things, I advise you strongly to verify the accounting rules with a CPA who is familiar with international transactions; you do not want to be wrong about this.
Please let me know what you learn further on this.
Answered on Mar 20th, 2022 at 11:42 AM