Published On: Mon, Apr 7th, 2014

U.S. Expat Taxes& Foreign Real Estate

American FlagFrom a tax standpoint, buying and selling foreign real estate is not much different than in the U.S. At the present time, there are no reporting requirements when purchasing foreign real estate. However, U.S. expats should be aware that if one transfers money to a foreign bank to facilitate a real estate transaction (and the balance exceeds $10,000), then this would trigger a requirement to file an FBAR, now called FinCen 114.

Property taxes are deductible on your tax return. So are mortgage interest payments, including home equity loans. The same restrictions apply as in the U.S. (e.g., acquisition debt limited to $1M, home equity debt limited to $100,000). One can deduct mortgage interest on up to two homes. Keep in mind that deductible amounts paid in local currency will need to be converted to USD for tax reporting purposes.

When it comes to selling foreign real estate, the tax-related similarities continue. If the home has been one’s primary residence for at least 2 out of the past 5 years, then one can exclude capital gains up to $250,000 ($500,000 if married filing jointly). Similar to the real estate deductions, amounts denominated in local currency will need to be converted to USD.

From a non-tax standpoint, there are a number of issues to consider. Property rights differ by country. Transferring money should be conducted carefully – fees and low F/X can be costly. It may be wise to seek professional guidance (e.g., a reputable real estate broker).

 

 

This article was written by John Ohe (IRS Enrolled Agent and managing partner at Hola Expat). For more information, visit us: HolaExpat.com

 

Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.

 

 

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