Buying and Owning Property Abroad as an American

Americans should review tax, currency, ownership, mortgage, insurance, rental, estate planning and investment implications before buying property abroad.

A review should usually consider:

• whether the property will be a home, investment or future retirement property
• whether it will be owned personally, jointly, through a company or through another structure
• whether a non-US spouse or family member will co-own the property
• how the purchase will be funded
• which currency the purchase price is in
• whether a foreign mortgage will be used
• whether rental income will be earned
• how local tax applies
• how US tax applies
• whether foreign tax credits may be relevant
• whether the property will create foreign bank accounts
• whether FBAR reporting may apply to related accounts
• whether Form 8938 may apply to foreign entities or financial assets
• whether the property affects estate planning
• whether local inheritance rules apply
• whether the property changes your retirement plan
• whether too much wealth will be tied to one illiquid asset

The IRS says US citizens and resident aliens abroad are generally taxed on worldwide income.

That means foreign rental income, gains, mortgage interest, expenses and property-related cashflows may need to be reviewed through both the local and US tax lens.

IRS Form 8938 guidance also makes an important distinction: directly held foreign real estate is not itself reported on Form 8938, but foreign real estate held through a foreign entity may mean the entity interest is a specified foreign financial asset where the relevant thresholds are exceeded.

Foreign property can look simple because it is tangible.

You can see it.

You can use it.

You can rent it out.

But from a financial planning perspective, property abroad can create several hidden risks.

For example:

• a large deposit may reduce investment liquidity
• mortgage payments may be due in a different currency from income
• rental income may be taxed locally and reportable in the US
• the property may create local inheritance issues
• the ownership structure may not suit a non-US spouse
• a foreign company structure may create US reporting issues
• repairs and maintenance may require local cash reserves
• currency movements may affect affordability
• selling costs may be higher than expected
• the property may become hard to sell when retirement income is needed
• too much wealth may become tied to one country or asset class

Property can be part of a strong financial plan.

But it should not accidentally become the plan.

The property should be reviewed alongside pensions, investments, cash, insurance, retirement income, currency and estate planning.

This page is for general information only and does not constitute personalised financial, tax, legal, investment, mortgage, real estate, pension transfer, retirement, estate planning, insurance, immigration or currency advice.

Foreign property ownership, rental income, capital gains, foreign mortgages, ownership structures, local tax, US tax, foreign tax credits, Form 8938, FBAR, foreign entities, property insurance, estate planning, inheritance tax, local succession rules, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal, mortgage and property advice should also be taken in the country where the property is located.

Financial planning should be coordinated with legal, tax, property, mortgage, pension and estate planning advice where appropriate.

Property values can fall as well as rise.

Property can be illiquid and may take time to sell.

Currency movements can affect the value of property, mortgages, rent, expenses, transfers and sale proceeds.