How to read your US Tax Return - 1040NR (2019 and prior)

Here is a brief overview of how to read your US Tax Returns for years 2019 and prior.  If you want to see the summary for Tax Returns for 2020 and later, 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 Invoice, Transmittal letter, and Filing instructions. 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.
• If we haven’t filed your return by June 1st (with June 15th being the deadline), you’ll have Form 4868 which is the extension for the Tax Return.  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.  Note that some returns will have this Form show up after the elections below.
• 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 15 will show any gain or loss from the sale of a property in the current year
  • Line 18 will show any taxable net rental income for the current year
  • Line 21 will typically show $1 of rounding if there is no other activity for the year as this is an e-file requirement to have something on the front page
  • Line  23 is the total of Lines 8 – 22
  • Line 35 is the difference between Lines 24-33 (usually not applicable) and Line 23
• Form 1040NR page 2 shows any taxable income, the tax liability, any tax paid, and any net tax due. The main lines to look at are:
  • Line 41 shows the income that will be taxed from page 1
  • Line 42 is your tax liability for the year
  • Line 62c is any estimated tax paid at the sale of a property
  • Line 62d 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 71 is your total tax already paid for the year
  • Line 73 shows any refund due to you from overpaid tax including your banking information if you chose to have the refund directly deposited
  • Line 75 shows any tax due by June 15th from underpaid tax
  • 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 page 3 shows your itemized deductions (usually not applicable)
• Form 1040NR page 4 shows any income not effectively connected, i.e. not related to your rental property
• Form 1040NR page 5 shows your country of citizenship and residence at the top, and any travel dates and number of days traveled in the US during the year in the middle
• Schedule D pages 1-2 will show any capital gains or losses from the sale of a property, US stocks, etc.
• 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, there correspond to the three columns in the middle of the page to show the rental income and expenses for up to 3 properties per page
  • Line 3 shows the rental income collected for each property
  • Lines 5-17 and 19 shows the various rental expenses for each property
  • Line 18 shows the depreciation expense for each property
  • Line 20 shows the total expenses for each property
  • Line 21 shows the net rental income or loss for each property
• Form 4797 pages 1-2 shows the gain from the sale of a property
• Form 8582 page 1 shows the accumulated losses for the properties (combined)
  • Line 3a shows any current year net rental income
  • Line 3b shows any current year net rental losses
  • Line 3c shows any prior year accumulated losses
  • Line 4 shows the total net losses carried forward
    • This loss will carry forward indefinitely to offset any future net rental income along with any capital gains on the sale of a property
• Form 8582 pages 2-3 shows a breakdown by property of page 1
• Form 4562 shows the current depreciation of any new asset put into place during the year.  
• Federal Statements is further detail and breakdowns of Line 19 – Other expenses on      Schedule E
• 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 we’ve elected to extend the useful life of an asset (flooring, furniture, appliances, etc.)
  • De Minimis Safe Harbor – this election says that we have items purchased during the year that are less than the $2500 threshold of capitalizing and depreciating and therefore we are electing to expense them in the current year
• Form 4868 see 3rd bullet point above
• Rent and Royalty Reconciliation shows further detail of Schedule E on a per property basis
• Federal Statements is further details of various lines on the Schedule E.  It may also show further sale breakdowns or breakdowns of properties with losses vs. properties with profit during the year
• 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.

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.