The Implications of Owning Real Estate in a Foreign Country

Are you considering purchasing real estate in a foreign country? How about holding existing properties that you plan on renting out? The requirement for reporting foreign real estate depends on the value of the real estate and how the real estate is held.

In this article, we’ll cover the basics of owning overseas real estate. Remember, this article isn’t a substitution for professional tax advice. Contact Kislay Shah CPA US today to schedule your free consultation.

Real Estate Implications for Individuals

American citizens who own real estate overseas generally do not need to report anything surrounding the properties on their individual income tax returns. Even if you meet the filing requirements for Form 8938, you do not need to report foreign real estate assets. Form 8938 primarily reports stocks and securities issued by foreign corporations and other foreign bank accounts.

However, if you rent out your real estate, you will be required to file Schedule E on your income tax return to report rental income. You may be able to lower your taxes with tax treaties and other existing agreements. In addition, active foreign bank accounts that hold more than $10,000 at any point during the year will also need to be reported on the Foreign Bank Account Report.

Real Estate Implications for Corporations and Land Trusts

One of the common ways to acquire foreign real estate assets is through a foreign corporation, partnership, or trust. Income generated from these transactions will be reported on Form 8938 if it exceeds a predetermined value or is considered to be a significant asset.

Single filers living in the United States must report assets if they exceed $50,000 at the end of the tax year or $75,000 at any time during the year. Married filings can double this threshold, generating filing requirements if assets exceed $100,000 at the end of the tax year or $150,000 at any point during the year.

United States citizens with foreign real estate assets must report their assets once the value exceeds $200,000 at the end of the year or $300,000 at any point during the year. This threshold is doubled for married filers.

Foreign Real Estate Sales

Selling your foreign real estate can also trigger a taxable event. Capital gains tax is imposed on all capital gains, regardless of the country’s source. However, if you lived in the property for two out of the past five years, you can take a $250,000 deduction from your gain. This deduction threshold is increased to $500,000 for married taxpayers.

Summary

Whether you are considering purchasing beachfront property outside of the United States or are planning on moving temporarily, it’s important to be aware of your real estate reporting requirements. Compliance is crucial when you have assets outside of the United States.

For personalized advice based on your foreign real estate situation, contact one of our team members at Kislay Shah CPA PC today to schedule your free consultation at or 646-328-1326.