How to read your US Tax Return - 1040NR (2020+)

Here is a brief overview of how to read our newly reformatted US Tax Returns beginning in year 2020.  If you want to see the summary for Tax Returns for 2019 and prior, click HERE.  Keep in mind that there may be pages on this overview that you don’t have and pages you have in your return that isn’t on this overview, however most of the important pages showing your rental activity, gains or losses from rentals or sales, etc. will be mentioned.

Note: If you haven't sold any property and simply want to see a quick overview of your rental information, see Schedule E (current year rental activity) and Form 8582 (accumulated losses), about halfway down the list, and the last page, the Federal Asset Report (capital assets and their depreciation).

• The first few pages typically consist of your Cover Page, Invoice, and Transmittal letter.  Read over these pages to give you information about what we did, what you need to do, and how the tax return will be filed.
• Form 8879 is your Taxpayer Declaration and Authorization to allow us to e-file the tax return on your behalf.  The top of this page gives a summary of the return, showing the income that will be taxed, the tax due, any payments already made, and the net refund or tax due.  Since 1040NR’s can’t be filed jointly, each spouse will receive their own return, their own Form 8879, and only their signature is needed.
• Form 4868 is the extension for the Tax Return.  This is only needed if you were unable to file by the June 15th deadline and needed additional time to file.  Keep in mind this is only an extension of time to FILE, not PAY any tax due.  The tax due still must be paid by June 15th.  
• Form 1040NR page 1 shows your information at the top (Name, Address, ITIN, etc.), and any income or expenses at the bottom.  The main lines to look at are:
  • Line 7 shows the gain from the sale of a property
  • Line 8 is a combined figure from Schedule 1 (two sections down)
  • Line 11 is your Adjusted Gross Income which is used for various calculations
  • Line 15 is your Taxable Income which will be used to determine your tax due
• Form 1040NR page 2 shows any tax liability, any tax paid, and any net tax due with the filing of the return as well as any refund of overpaid tax. The main lines to look at are:
  • Line 16 is your tax liability for the year
  • Line 25f is any estimated tax paid at the sale of a property
  • Line 25g is any estimated tax withheld from your management company or financial institution based on the income earned/collected on your behalf during the year
  • Line 33 is the total estimated tax already paid during the year
  • Line 34/35 shows any refund due to you from overpaid tax including your banking information (lines 35b-35d) if you chose to have the refund directly deposited
  • Line 37 shows any liability tax due by June 15th (regardless of an extension being filed)
  • If paper filing your tax return, you will sign next to where it says Sign Here and the black arrow pointing at the signature line in the bottom left of the page
• Form 1040NR schedule 1 is a new form beginning with the 2020 tax return.  The main lines to look at are:
  • Line 4 shows the loss from the sale of a property
  • Line 5 shows the net rental income for the year, or accumulated losses if the property is sold
  • Line 8z will show Rounding of $1 if there was no property sold or net rental income for the year.  This is only shown to allow the return to be e-filed.  This doesn't result in a tax liability.
  • Line 9 (2020) or Line 10 (2021) shows the combination of Lines 4 and 5
• Form 1040NR schedule OI (Other Information) shows information about you for the current tax year.  At the top it shows your country of residence and citizenship, as well as any Visa, immigration or US citizen or resident statuses.  In the middle it shows any travel information to the US include dates entered and left, and the total number of days for the last 3 years.  
• Schedule D pages 1-2 will show any capital gains from the sale of a property, US Stocks, etc.
  • Line 11 shows any gains from the sale of property
  • Line 14 shows the accumulated capital losses from prior years that are carried forward
• Schedule E is the main page you’ll focus on as this shows all your rental activity for the year.
  • At the top, under line 1a will be lines A, B, and C, showing the addresses for up to three rental properties per page, which correspond to the three columns in the middle of the page showing rental income and expenses.
  • Line 3 shows the rental income collected for each property
  • Lines 5-17 shows the various rental expenses for each property
  • Line 18 shows the depreciation expense for each property
  • Line 19 shows other expenses not categorized in lines 5-18, and is detailed out on the Federal Statements later in the tax return
  • Line 20 shows the total expenses for each property
  • Line 21 shows the net rental income or loss for each property
  • Line 26 shows the total net rental income to be taxed, or net rental losses if property is sold, and shown on Line 5 of Form 1040NR, Schedule 1 above
• Form 4797 page 1 shows the gain or loss from the sale of a rental property's assets and/or the loss from the sale of a rental property (building only), and may direct you to the Federal Statements for a breakdown if more than two assets were sold that were held longer than a year (long-term capital gains/losses)
• Form 4797 page 2 shows the gain from the sale of a rental property (building only)
• Form 8582 page 1 shows the accumulated losses for the properties (combined).  In the "All Other Passive Activities" section:
  • Line a shows any current year net rental income and/or capital gains from sale of property
  • Line b shows any current year net rental losses and/or capital losses from sale of property
  • Line c shows any prior year accumulated losses
  • Line d shows the total net losses carried forward
    • Any loss on Line d will carry forward indefinitely to offset any future net rental income along with any capital gains on the sale of a property
• Form 8582 page 2 (and page 3 for 2020) shows a breakdown by property of page 1
• Tax Return Reconciliation Worksheets are the original Page 1 and Page 2 of the 1040NR from 2019 and prior.  This provides further detail of the current Form 1040NR Pages 1 and 2.  For more detail on what the individual lines show, click HERE and look at Form 1040NR Pages 1 and 2.
• Form 4562 shows any new asset(s) put into place during the year.  
• Federal Statements (Required Statements) is further detail and breakdowns of various numbers that are lumped together on the tax return and is included in what's sent to the IRS.  Examples include:
  • Schedule E, Line 19 - Other expenses not categorized in lines 5-18 on Schedule E
  • Form 4797, Line 2 - Capital losses from sale of rental property assets
• 28% Rate Capital Gain and Unrecaptured Section 1250 Worksheets, Net Operating Loss Worksheet, AMT Net Operating Loss Worksheet, and Net Operating Loss Carryover Worksheet each primarily show what your losses are that carry forward to offset future income.  These only appear when you sell, or have sold, a rental property.
• Election pages
  • Treat Income as Effectively Connected – this election says the income earned is connected to your rental property.
  • Straight-Line Depreciation Method – this election shows that you’ve elected to change the depreciation method of an asset (flooring, furniture, appliances, etc.).   By default, assets are typically depreciated more up front in its useful life, and less later on.  With straight-line depreciation, the asset is evenly depreciated throughout its useful life.
  • De Minimis Safe Harbor – this election says that you have items purchased during the year that are less than the $2500 threshold of capitalizing and depreciating and therefore you are electing to expense them in the current year.
• Rent and Royalty Reconciliation shows further detail of Schedule E on a per property basis
• Federal Statements (Not Required Statements) is further detail and breakdowns of various numbers that are lumped together on the tax return and is not included in what's sent to the IRS.   Examples include:
  • Schedule E, Line 3 (Income), Line 8 (Commissions), Line 9 (Insurance), Line 16 (Taxes), etc.
  • Form 4797 - Unrecaptured Section 1250 Gains (i.e., depreciation on an asset sold during the year, that's converted to income, and subject to being taxed).
  • NOL Worksheet 1, Line 6 - Nonbusiness (personal) deductions (appears when a rental property is sold and typically says standard deduction with no amount as non-residents don't qualify for the standard deduction).
• Federal Asset Report shows the properties that you have, and any assets recorded that are associated with the property.  For example, you may have the building, land, furnishing package, appliances, etc. It also shows when the assets were purchased, the purchase cost, and any depreciation for the asset.  There is one property and its corresponding assets per page.

Hopefully this will give you a good overview of how to read your tax return, if you have any questions, please let me know at Office@Moats-Tax.com.