If I lease out my farm in Ireland, am I liable for tax in the US?

Q: I am currently living In Ireland and own a farm. I’m considering moving to US to live with my American girlfriend. My plan would be to lease out the farm and pay tax on this here in Ireland. Am I liable to be taxed again by IRS in America on this money, or am I ok once I pay the necessary tax here?

A: Barry Flanagan, senior tax manager, Taxback. com

On the understanding that you are ordinarily resident in Ireland and an Irish domicile (which most Irish nationals are), then it is likely that you would be taxable both in Ireland and the US simultaneously on this income. This means that we need to consult the Ireland/US Double Tax Treaty to identify where you are primarily taxable. Many mistakenly think that because this treaty exists, you can’t be taxable or taxed in both jurisdictions at once. It doesn’t. However, it does outline what reliefs and deductions may be available if you are. This will apply potentially to more than just your agricultural income too.

Firstly, we need to consider your Irish domestic position. Even once you leave Ireland, you will be considered Ordinary Resident and Domicile here for at least three consecutive years of non-residence. This means you are taxable here in Ireland on your worldwide income, excluding only income from a trade, profession or employment exercised wholly outside the State.

Clearly your Irish farm income is not excluded from the charge to Irish tax. In fact, as this would be deemed to be “Irish income”, is likely to always be taxable here.

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You may be able to claim “Split Year” relief on employment income in your year of departure, but this does not extend to self-employment income. Trade or professional income earned abroad in any year that you are considered Resident in Ireland would also potentially be taxable here.

Next, your US position. If you are emigrating for the foreseeable future (and presuming that you have the correct visa/green card status) you will be taxable in the US as soon as you qualify as a US resident, under their substantial presence test. This again taxes your worldwide income. You would be required to declare the Irish rental income on your US Federal and possibly also on your US State tax return.

Given that you would be taxable on this farm income in both jurisdictions, we now look to the Double Tax treaty for guidance and relief. Article 6 allocates the primary taxing right to the State where the income derived from the “immovable property” is situated (i.e. in this case Ireland). So you would be taxable here in the first instance (but as a non-resident not entitled to tax credits).

You would then be taxable in the US on this income. You would be allowed to claim a credit for taxes paid in Ireland against the US Federal tax liability; so to the extent Irish tax is equal to or higher than the US tax liability, there shouldn’t be additional Federal tax due in the US.

At State level, the situation is slightly different, as it depends on the particular State where you move to as only some allow Foreign Tax Credits be claimed, but chances are that there may be additional State tax due on top of the tax paid in Ireland.

Tax Returns should be filed in any year where you are considered resident in the US, and in any year where you have Irish income not subject to PAYE, so it is likely you’ll need to file 3 returns (State and Federal in the US and a Form 11/12 here in Ireland) each year, to declare this income.

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