" The income from the property would go directly to her. We wanted to know the tax consequences for this(on the U.S. side)."----> Who owns the property? If you actually own it UNDER either YOUR NAME or YOUR WIFE'S NAME , Then as a US citizen or a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether from sources within or outside the United States( though all of the rental income from the property directly goes to your mother in law); You , if you had made big gifts exceeding $1.13,000 million before, may be subject to gift taxes on the rental income for your mother in law.( if the amount exceeds $13,000 per annum)
As you pay taxes on the rental income to the foreing tasxing authority, you can claim tax crediton it as long as there is tax treaty between US and the foreign country.
Also if you send( transfer) your money exceeding $10,000 to the foreign country via wire transfer to purchase the rental property there, your bank will automatically report the money to the IRS.That doesn't mean to pay any form of taxes on the money transfered overseas from the US .Federal law requires that all banks in the US report any cash deposits/ transfers made in excess of $10,000 in the hopes of discouraging money laundering, rather than tax evasion. "wires" from/to abroad require the same information.
Last edited by Wnhough : 10-29-2010 at 08:53 AM.