Bill and Jane Smith live and work in the United States. In 2000,
they received $14,400 in income from the rental of a condominium they
own in the Virgin Islands. The rental income was deposited in a bank
in the Virgin Islands and they received $500 of interest on this
income. They were not bona fide residents of the Virgin Islands at the
end of the year.
The Smiths complete Form 1040, reporting their income from all
sources. They report their wages, interest income, and the income and
expenses from their Virgin Islands rental property (Schedule E, Form
1040).
The Smiths also complete Form 8689, to determine how much of their
U.S. tax shown on line 57 of Form 1040 (with certain adjustments) is
due to the Virgin Islands. This is the amount the Smiths must pay to
the Virgin Islands.
The Smiths file their Form 1040, attaching Form 8689 and all other
schedules, with the Internal Revenue Service.
At the same time, they send a copy of their Form 1040 with all
schedules, including Form 8689, to the Virgin Islands Bureau of
Internal Revenue. This copy will be processed as their original Virgin
Islands return.
Completing Form 8689.
Bill and Jane enter their names, present home address, and social
security numbers at the top of the form.
Part I. The Smiths enter their income from the Virgin
Islands in Part I. The interest income is entered on line 2 and the
net rental income of $6,200 ($14,400 of rental income minus $8,200 of
rental expenses) is entered on line 11. The Smiths' total Virgin
Islands income of $6,700 is entered on line 16.
Part II. The Smiths have no adjustments to their Virgin
Islands income, so they enter zero (-0-) on line 25, and
$6,700 on line 26. Their Virgin Islands adjusted gross income is
$6,700.
Part III. On line 27, the Smiths enter the amount from
line 57, Form 1040 ($5,404). The amount on Form 8689, line 27, is
before any credit for taxes paid to the Virgin Islands.
The Smiths enter their worldwide adjusted gross income, $49,737,
(line 34, Form 1040) on line 30. They divide their Virgin Islands
adjusted gross income, $6,700 (from line 26), by line 30. They
multiply this decimal, .135, by the amount on line 29 to find the
amount of tax due to the Virgin Islands (line 32). The Smiths include
this amount ($730) in the total on Form 1040, line 65. On the dotted
line next to line 65, they write "Form 8689" and show the amount.
The Smiths do not complete Form 1116.
Part IV. Part IV is used to show payments of income tax
to the Virgin Islands only. The Smiths had no tax withheld by the
Virgin Islands, but made estimated tax payments to the Virgin Islands
of $700, which are shown on lines 34 and 36. The income tax the Smiths
owe to the Virgin Islands ($30) is shown on line 40. They must pay
their Virgin Islands tax at the same time they file the copy of their
return with the Virgin Islands.
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