[ashok jain]

Dear Atlanta Tax Expert,

I must congratulate you for providing a clear and prompt advice and therefore decided to ask my longish question. Sorry for that. Here it goes:

Myself (employed with a foreign corporation in UAE) and my wife ( not employed but having self employed income in UAE). Both are Indian citizens with Bonafide residence in UAE for last 15 years living togather in a rented apartment ( dependents are USC / Residents and working is USA for few years). We donot have any US soure income.

My wife is a beneficiary of I130 petition by our daughter who is a USC. My wife expets tol receive her GC and LPR status in May 2009. So for the first time she will be filing her 1040/2555 tax return for the year 2009 from May onwards, as a RESIDENT ALIEN living abroad in UAE.

She qualifies as bonafide resident of UAE because she is a citizen of India and continues to live in UAE for last 15 years with her husband who continues to be a Non resident Alien and works in UAE for a foreign company.

She has no US source income. She is not an employee in UAE but has self employed income (SEI) in UAE. So, after getting the Green Card, she plans to join her husband in UAE and will continue to satisfy the Bonafide residency test in UAE and will also take enough precaution visits to USA / steps to maintain her GC for next 1-2 years, after which her husband would also be retiring from his job in UAE and get his GC and then both will move to live in USA.
That sure was a long background!

So She fills 1040 Shedule E and schedule C as under:

She jointly owns with her husband a rental apartment property in UAE. It has a loss of 15,000 (after deducting Investment interest, depreciation, management fee and maintenance charges). So on Schedule E, out of this loss of 15,000 should she she show 50% i.e. loss of 7,500 on her return ?

She also does Schedule C for providing her services ( which includes finding a renter and getting the apartment cleaned / minor repairs before renting, colleting the rent and liasoning between the owner and the rentor during the year). She gets a management fee of 4500 per year from the above mentioned jointly owned rental property and 2000 from another client - thus a total of 6500, out of which the only expense she shows is telephone/ travel of 1500 for the year. Thus she shows a net self employment income of $ 5000 on schedule C and She pays SST on this 5000. Is this correct? Or this 5000 will be offset by the Schedule E loss of 10,000 and she cannot pay SST?

Is the above acceptable to IRS? Or, she needs to form a sole proprietor LLC for providing the management services? Also, should we also look at the possibility of changing the Ownership of the said apartment from joint to single in the name of husband only in order not to raise question on earning 4500 from jointly owned property?

Also, if above is correct then, can you please advise what precaution can we take in terms of keeping the paperwork for her to show her S E Income on Schedule C and to pay her SETax.

[AtlantaTaxExpert]

Duplicate posting; already answered.