Owning Foreign Real Estate as a Corporation or Land Trust United States citizens with foreign real estate who are filing individually must report their assets if they exceed $200,000 at the end of the year or $300,000 at any given time in the year. The threshold is twice as much for married couples filing together.
Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.
In addition to the tax and interest triggered by the foreign asset income, the taxpayer must pay a miscellaneous penalty equal to 5 percent of any foreign asset (i.e., a bank account) that was not properly reported on the original returns.
Generally, any U.S. person holding an interest in specified foreign financial assets with an aggregate value exceeding $50,000 at the end of the tax year or $75,000 at any time during the tax year is required to report these assets on Form 8938. Specified foreign financial assets include: Foreign bank accounts.
If you sell your foreign property, you may be able to make a 1031 exchange (also called a like-kind exchange), in which you swap one investment property for another similar property on a tax-deferred basis. Many investors use this strategy to defer paying capital gains and depreciation recapture taxes.
If you meet the applicable reporting threshold, you must report all of your specified foreign financial assets, including the specified foreign financial assets that have a de minimis maximum value during the tax year. For exceptions to reporting, see Exceptions to Reporting in the instructions for Form 8938.
If you are an American, you will owe the same taxes on foreign real estate transactions as on domestic real estate. You will also need to correctly convert foreign currency transactions to U.S. dollars.
As per the Income Tax Act of 1961, residents and ordinarily resident Indians should report their foreign income, assets, accounts, and shares in the schedule FA in ITR in a given format. This schedule helps curb tax evasion through offshore routes.
US taxpayers are required to report their worldwide income and foreign financial assets annually on their tax returns and on international informational reports, such as FinCEN Form 114 (FBAR), Form 8938, etc.
Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department.
In general, Form 8938 penalties will be $10,000 per year.
However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023).
As a U.S. citizen or resident alien, you must report foreign income to the IRS, regardless of whether you reside in the U.S. or not. There is a foreign earned income exclusion if you earned foreign income while residing in another country.
Key Takeaways
Buying property overseas doesn't automatically trigger a US tax reporting requirement. Selling foreign property will result in a capital gain or loss that is reportable on your US tax return. Buying or selling foreign property may create tax obligations in your country of residence.
The Foreign Property Rule (FPR) limits the amount that an in- dividual can hold as foreign assets in an RRSP or RPP account.
U.S. capital gains tax on selling foreign property. When you sell property or real estate in the U.S. you need to report it and you may end up owing a capital gains tax. The same is true if sell real estate overseas, and we don't recommend trying to avoid a capital gains tax on foreign property.
Expats can use the Foreign Earned Tax Exclusion (FEIE) to exclude foreign income from US taxation. For the 2023 tax year, the maximum exclusion amount under the FEIE is $120,000. To qualify for the FEIE, you must meet the standards of the physical presence test or the bona fide residence test.
Dual citizens who are living abroad may owe taxes to both the U.S. and the country in which they earn their income. Double taxation results when both countries assert their right to tax the same income.
The US expat tax penalties to file an FBAR are more severe and the civil penalty for willfully failing to file an FBAR can be up to the greater of $100,000 or 50% of the total balance of the foreign accounts. Expat non-willful violations that are not due to reasonable cause are subject to a penalty of up to $10,000.
The income tax return contains a 'Schedule FA' for the declaration of the foreign assets or accounts in respect of which you are a legal owner, a beneficiary, or a beneficial owner.
Use Form 8938 to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold.
FBAR Penalties for Willful Failure to File
The standard penalty for willful failure to file is $100,000 or 50% of the account's balance at the time of the violation, whichever is higher, for each year that a required FBAR wasn't filed. In some cases, willful failure to file could even result in a prison sentence.
Green card holders are taxed the same way as United States citizens. So, just like American citizens, green card holders do not have to pay federal taxes on a foreign inheritance. However, they might have to report it. Some states have their own laws about taxing a foreign inheritance, which is important to note.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
You may have to register your LLC, whether it is from the United States, Nevis, or another jurisdiction, if you want to use it to hold property in another country (though this is not always necessary, despite what your local country attorney may insist… remember, he makes money registering the entity for you).