Do US Citizens Have to Report Foreign Real Estate?
United States citizens who move to other countries still need to file their taxes and report their assets, which means that they have to report the real estate that they own in other countries. It’s easy for U.S. expats who own real estate to feel overwhelmed by the idea of reporting the property they own, but it doesn’t have to be if they use the help of the experienced foreign tax accountants from U.S. Tax Help. To learn more about the requirements that U.S. citizens living abroad face regarding reporting their real estate, continue reading.
Owning Overseas Real Estate as a United States Citizen
Whether or not a United States citizen must report their foreign real estate to the IRS depends on the value of the real estate and whether the real estate was purchased as an individual or corporation/land trust.
Owning Foreign Real Estate as an Individual
If you are an American citizen who owns real estate overseas and you bought it as an individual, likely, you won’t have to report your foreign real estate. United States citizens should note that they must file Form 8938 if they have significant assets outside of the United States, yet foreign real estate is not required to be reported. Assets required to be reported on Form 8938 are stocks and securities that are issued by a foreign corporation, contact, or investment with an issuer or counterparty that is not a U.S.-based person. Foreign accounts maintained by foreign financial institutions must also be reported on Form 8938.
However, United States citizens who rent out the foreign real estate they own will have to report their rental income on their personal federal tax return (Form 1040), even if they don’t file Form 8938. Reporting rental income usually reduces the taxpayer’s taxes.
Also, United States citizens who own foreign real estate should note that they will have to report their foreign accounts. Since many taxpayers will have to open foreign bank accounts to either facilitate the purchase of the real estate or to keep rental income, it’s likely that owners of foreign property also have foreign bank accounts. Foreign bank accounts must only be reported if they have more than $10,000 on any given point in the tax year; they can be reported using the Foreign Bank Account Report (also known as the FBAR).
Owning Foreign Real Estate as a Corporation or Land Trust
It’s common for United States citizens to purchase foreign real estate through a foreign entity such as a corporation, partnership, or trust. If this is the case, the real estate must be reported on Form 8938 if it exceeds a specific value, or is considered to be a “significant asset.” If you are living in the United States and are single or married but filing separately, you must report your assets if they exceed $50,000 at the end of the year or $75,000 at any given point in the year. Married couples filing together must report assets if they exceed $100,000 at the end of the year or $150,000 at any given point in the year. 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. The Foreign Account Tax Compliance Act dictates this requirement.
Selling Foreign Real Estate
When United States citizens sell foreign real estate, they may have to pay a capital gains tax. The capital gains tax is applied to all United States citizens’ capital gains, regardless of where the gain is made and whether capital gains taxes are levied on these profits in other countries. If the owner of the residence lived on the property for more than two years out of the previous five years, the property would be considered a primary residence and the owner might qualify for a $250,000 deduction if they are a single filer and $500,000 if they are married and filing jointly. If the property was not a primary residence, the sale would be subject to standard capital gains taxation rates, which is no more than 15% for most taxpayers and might even be 0% for some.
Reporting Rental Income on Foreign Real Estate
United States citizens who own foreign real estate will have to report their rental income if they rent the real estate to tenants. Deductions that can be applied to rental property located in other countries are the same as the deductions that can be applied to rental properties located in the United States—these include mortgage interest, management fees and expenses, local property taxes, and repairs. Foreign real estate owners should note, though, that their foreign rental income and deductions must be reported in United States currency. Rental income made from renting foreign estate qualifies for exclusion through the Foreign-Earned Income Exemption if the owner passes either the physical presence test or the bona fide residence test.
Expert Accountants Specializing in Foreign Real Estate
If you feel daunted by the idea of navigating the United States tax code as you prepare to report your foreign real estate, get in touch with the international tax accountants from U.S. Tax Help. With more than 30 years of experience preparing and planning international taxes for American expats, the group of tax experts that work with U.S. Tax Help can make the reporting process easy. Call U.S. Tax Help at (541) 362-9127 today.