For Americans, the taxes you owe on foreign real estate are largely identical to the taxes you owe on domestically held properties, but there may be different laws in the country your property is in which you must follow.
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.
Earnings from foreign bank accounts must be reported and taxed on US Form 1040. Additionally, the taxpayer is required to disclose, on Schedule B, whether they own any foreign bank accounts and they may be required to report the accounts on Form 8938, Statement of Specified Foreign Financial Assets.
Specified foreign financial assets
If the IRS mails you a notice about failing to file a Form 8938 and you don't file the form within 90 days, an additional continuation penalty of $10,000 for each 30-day period after the 90-day period has expired may apply. The maximum continuation penalty is $50,000.
Limit on excludable amount
The maximum foreign earned income exclusion amount is adjusted annually for inflation. For tax year 2023, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $120,000 per qualifying person. For tax year 2024, the maximum exclusion is $126,500 per person.
There are many countries where US citizens can buy property to retire, rent out, or live in. International real estate is a great investment because it opens up new income streams, appreciates in value, and, in many cases, allows you to have a better lifestyle with a lower cost of living.
While there is no blanket tax exemption for Americans overseas, the IRS does provide several tax benefits that help you reduce your taxes. These include: Foreign Earned Income Exclusion (FEIE): This benefit allows you to exclude a certain amount of foreign-earned income from US taxation.
Stock or securities issued by someone other than a U.S. person. Any interest in a foreign entity, and. Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
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.
One of the main catalysts for the IRS to learn about foreign income which was not reported is through FATCA, which is the Foreign Account Tax Compliance Act. In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.
In case you are a resident in India, the details of all foreign assets or accounts in respect of which you are a beneficial owner, a beneficiary or the legal owner, is required to be mandatorily disclosed in the Schedule FA.
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.
Key Takeaways
Dual citizens are often required to file tax returns in both countries. However, tax treaties and other benefits can be used to avoid double taxation. Using these benefits, most US dual citizens who live abroad can erase their US tax liability.
Some properties, such as those owned by religious organizations or governments are completely exempt from paying property taxes. Others are partially exempt, such as veterans who qualify for an exemption on part of their homes, and homeowners who are eligible for the School Tax Relief (STAR) program.
Reporting requirement for foreign accounts and assets
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts.
Absences of more than 365 consecutive days
You must apply for a re-entry permit (Form I-131) before you leave the United States, or your permanent residence status will be considered abandoned. A re-entry permit enables you to be abroad for up to two years.
The US is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live or earn their income. This means that American expats are potentially subject to double taxation – once by the country where they earn their income, and again by the United States. NOTE!
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.
Costa Rica. “With clear property rights, a legal system that respects foreign ownership, and a warm, welcoming environment, Costa Rica is a top choice for foreign investors and a simple place to buy property,” says Mauricio Umansky, CEO and founder of The Agency, which has offices around the world.
The U.S. taxes you on any income you earn, whether it's earned in the U.S. or another country. So if you owned a home or property in another country, such as Mexico, and then sold that home for a profit, you'll need to report the sale just as you would if it were located in the U.S.
Living abroad doesn't exempt U.S. citizens from their tax obligations to the U.S. government. Here's what you need to know about handling income earned abroad. File using Form 1040. U.S. citizens living aboard must report all worldwide income, including income earned abroad.
The Foreign Earned Income Exclusion, or FEIE, allows Americans living abroad to exclude up to $126,500 of foreign earned income from federal income tax in the 2024 tax year ($130,000 for the 2025 tax year). The exclusion amount is adjusted annually for inflation. The FEIE does not apply to all types of income.
In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.