Will my Social Security retirement benefits be reduced by rental income? US vs foreign properties
I'm planning my retirement for next year (turning 67) and have a question about rental income that nobody seems to give me a straight answer on. I own two small rental properties – one here in Florida and another small apartment in Portugal that I inherited from my aunt. I've been told different things by different people about how rental income affects Social Security. My neighbor swears his retirement benefits weren't reduced at all despite having three rental properties, but my tax guy mentioned something about earnings limits. Does anyone know: 1) If residential rental income gets subtracted from your Social Security retirement benefit amount? 2) If there's a difference between US rental properties and foreign ones (like my Portugal apartment)? I'm just trying to figure out my actual budget for when I stop working. Thanks for any help!
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Andre Dubois
Good news! Rental income is considered "unearned income" and doesn't count against your Social Security benefits. The earnings test only applies to wages from employment or net earnings from self-employment. Your rental properties are passive investments, so that income won't reduce your benefits. This applies to both your US and Portuguese properties. The SSA doesn't distinguish between domestic and foreign rental income for benefit calculation purposes. Just be aware that while rental income doesn't affect your benefits, it could potentially impact the taxation of your benefits if your combined income (adjusted gross income + nontaxable interest + half of your SS benefits) exceeds certain thresholds.
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Carmen Flores
•Thank you! That's a huge relief. So I'll receive my full FRA benefit regardless of what I earn from these properties? I was so worried about this because the Portugal apartment brings in about €1,200/month. Do I need to report this income to SSA somehow or just on my taxes?
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CyberSamurai
my uncle had this exactly situation with property in mexico. SS didn't care about the rental $$ but he had to pay taxes on it all. watch out for tax treaties too, some countries have deals with US about how income gets taxed. better check with an accountant who knows international stuff
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Andre Dubois
•Good point about the tax treaties. Portugal does have a tax treaty with the US that could affect how rental income is reported and taxed. But again, this is separate from how the SSA treats that income for benefit calculation purposes.
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Zoe Alexopoulos
I think your tax guy was probably talking about the earnings limit which ONLY applies if you're collecting benefits before your Full Retirement Age (FRA) and still working at a job or self-employed business. Since you said you're turning 67, you'll be at your FRA and the earnings test won't apply to you AT ALL - even for work income! BUT WATCH OUT for the taxation issue that the first response mentioned. Up to 85% of your SS benefits can become taxable if your combined income gets too high. The rental income won't reduce your SS payment, but it might cause more of your benefits to be taxed.
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Carmen Flores
•Oh, I didn't realize the earnings limit goes away completely at FRA! That's fantastic. I was planning to do some part-time consulting after I retire, so that's good to know too. I'll definitely talk to my tax guy about the taxation issues with the combined income. Thanks!
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Jamal Carter
THE SSA DOESN'T CARE ABOUT RENTAL INCOME!!! But the IRS sure does 😡 I have rental properties and my benefits aren't reduced at all. But I had a NASTY SURPRISE when tax time came because suddenly 85% of my SS was taxable. It's a TOTAL SCAM how they get you coming and going!!! First they make you pay into the system your whole life, then they tax the benefits they promised you!!! And now with property taxes going up every year, it's getting harder to even make decent rental income.
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Mei Liu
•Same thing happened to me! I wasn't prepared for how much of my SS would be taxed after adding in my rental income. Wish someone had warned me before I filed that first year of retirement.
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Liam O'Donnell
I've been trying to reach SSA for weeks to ask about this exact situation with my overseas property. Their phone lines are always busy and my local office has no appointments for months. Finally used Claimyr (claimyr.com) to get through to a representative yesterday. Took about 10 minutes instead of hours on hold. They have a video showing how it works: https://youtu.be/Z-BRbJw3puU Anyway, the SSA agent confirmed what others here said - rental income (US or foreign) doesn't count toward the earnings test. She explained that only wages and self-employment income count for that purpose.
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Carmen Flores
•Thanks for the confirmation from an actual SSA rep! I might try that service since I have a few more questions about my specific situation. The local office is impossible to get appointments at.
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Amara Nwosu
IMPORTANT DISTINCTION: There's a difference between "passive" rental income and being in the "business" of real estate. If you're actively managing properties as a business (substantial services, multiple properties, etc.), the IRS might classify you as self-employed in real estate, which WOULD count against the earnings test if you're under FRA. From your description of just two properties, sounds like you're fine and it's passive income. But something to be aware of for others reading.
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Andre Dubois
•This is an excellent point! If you spend significant time managing properties, make repairs yourself, or are essentially running a rental business, the IRS could classify that as self-employment income rather than passive investment income. The distinction matters for Social Security purposes.
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Mei Liu
Wait I'm confused now...does rental income count toward the MAXIMUM amount you can earn before they tax your Social Security? I thought there was like a $25,000 limit before they start taxing benefits? Can someone explain how this works in simple english plz??
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Zoe Alexopoulos
•There are two separate issues: 1) The EARNINGS TEST only applies if you're under Full Retirement Age and only counts wages or self-employment income. This can REDUCE your benefits if you earn too much. Rental income doesn't count for this. 2) The TAXATION OF BENEFITS is about how much of your SS is subject to income tax. This depends on your "combined income" (AGI + nontaxable interest + 1/2 of SS benefits). Rental income is part of your AGI, so it does count here. For single filers, if combined income is over $25,000, up to 50% of benefits may be taxable. Over $34,000, up to 85% may be taxable. Rental income won't reduce your benefit amount, but it might increase how much of your benefit gets taxed.
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CyberSamurai
not to make things more complicated but you should also look into FBAR requirements if your getting money from overseas. if you have foreign bank accounts over $10k you gotta file extra forms with treasury dept. my friend got big fines for not knowing about this with his rental in spain
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Carmen Flores
Thank you everyone for all the helpful information! To summarize what I've learned: 1) My rental income (both US and Portugal) won't reduce my Social Security benefits 2) Since I'll be at FRA (67), the earnings test won't apply to me anyway 3) I need to watch out for the taxation thresholds since rental income could make more of my SS benefits taxable 4) I should look into the tax treaty between US and Portugal 5) I need to be aware of FBAR requirements for the foreign account This is such a relief! I'll talk to my tax advisor about the taxation issues, but I'm glad my actual benefit amount won't be reduced. Thanks again to everyone who responded!
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