Tax Tips: Foreign retirement income is taxable as SS benefit

February 11, 2012 by  
Filed under Solar Energy Tips

Shirley Harris, certified public accountant and a director in the Knoxville accounting firm of Bible Harris Smith PC.    TSCPA submitted photo/February 2012

Shirley Harris, certified public accountant and a director in the Knoxville accounting firm of Bible Harris Smith PC.

TSCPA submitted photo/February 2012


Knoxville-area accountants are offering advice through our Tax Tips columns, which will appear each Saturday in the Business section until the April 17 Internal Revenue Service deadline. This week, Knoxville CPA Shirley Harris answers readers’ questions. If you have a tax-related question you would like answered, e-mail it to news@knoxvillebiz.com or write to the News Sentinel, Attention Business News Desk, 2332 News Sentinel Dr., Knoxville, TN 37921.

Q: My wife is a naturalized American. We married while I was stationed in Germany (for 10 years). She was a bookkeeper for various German firms and paid into their national retirement system. We settled in Knoxville 20 years ago. Upon reaching age 65, she applied for and began to receive a pension from the German government. My question relates to how to report her pension income on our joint federal income tax return.

I have done some research and learned that due to a 1989 U.S./German treaty this income should be reported as Social Security income. If this is correct, is the entire gross amount of her pension taxable or is a portion of the gross taxable? She has a compilation of the total amount she paid into the German system over the years. I looked at the treaty (Article 18) but it is written is legalese and is undecipherable. I would appreciate any help you can provide us on this matter. E.B., Eagle Creek Lane

A: I am assuming that your wife’s employment was not related to government service. If not, then you are correct in that the retirement income received from the German government is taxable in the United States as Social Security benefits. You should report entire amount received on line 20a of your 2011 individual tax return.

Generally, your combined adjusted gross income after adding half of the Social Security benefit will determine how much, if any, of the amount will be taxable. Up to 85 percent of the benefit may be taxable depending on your income.

Q: I recently have purchased energy efficient appliances — gas stove, refrigerator, washer, dryer, televisions, computers, CD player — and would like to know if these can be deducted on my 2011 income tax. If so, which form or forms do I need to get? C.W., Knoxville

A: Unfortunately, the residential energy credit (Form 5695) is only available for nonbusiness energy property such as exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. The total combined credit limit for all tax years after 2005 is $500.

There also is a residential energy efficient property credit of 30 percent of the qualified cost of eligible solar electricity equipment, eligible solar water heaters, qualified small wind energy property, qualified geothermal heat pump property and fuel cell property.

Shirley Harris is a director in the Knoxville accounting firm of Bible Harris Smith PC. She is a member of the Knoxville chapter of the Tennessee Society of Certified Public Accountants and the American Institute of Certified Public Accountants. She is past chairwoman of the Services for Small Business Committee for the TSCPA and the Knoxville Chapter.

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