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Jaloti,

Others have answered the question about reporting.

I live and work and have investment property outside the US. I have a US passport.

It is a common misunderstanding by non-US tax payers that income earned outside the US is not taxable in the US.

Put differently, almost no other country taxes overseas income when the income is earned by a non-resident. Some do tax the overseas income for residents (UK being an example of both). The UK has a rule that lets someone be resident physically but be non-resident for tax purposes (depends on where your grandparents are from, if you say you expect to move back out of the UK, that you have not moved all your assets to the UK - another example of decisions based on 'intent').

So, be gentle with the relatives who are trying to be generous. They just do not understand how aggressive the IRS can be when it comes to income produced anywhere on the planet earth. Most folks outside the US are surprised at the way the US system works as there are few other examples of tax codes that operate the same way.

BTW - If you seek professional advice understand that you really will end up paying a bit more as a competent tax advisor who understands non-US sourced income is in the minority. If you use a big firm they might end up pulling in someone from their non-US offices). You may end up paying for two people's time.

John
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