International Taxation Question

Jose, an unmarried individual who is a citizen and resident of Brazil, owns a shopping center in Chicago. He leases the mall to an unrelated domestic corporation, which subleases store spaces to merchants.

The lease entitles Jose to rents of $1,000 per month and also requires that the lessee make Joses payments on the mortgage on the center ($2,000 per month) and pay real property taxes on the center ($6,000 for the current year).

For the current year, the $24,000 in mortgage payments consist of interest of $16,000 and principal of $8,000. Depreciation deductions on the shopping center, if allowable, are $35,000 each year.

Explain Joses U.S. tax situation under both of the following scenarios.

A.He does NOT make the election under section 871(d).

B.He makes the election under 871(d).