The Price of Paradise: Taxes and Foreign Property

The allure of a foreign country calls to many United States citizens. Some fall in love with the views, the culture, the weather. Some choose to make their vacation destinations more than just an occasional stop, but rather invest in property and visit their personal paradise on a more regular basis.

Ownership of property in a foreign land can come with unforeseen tax obligations that are much less alluring then the appeal of living in a foreign country. United States citizens that purchase property in a foreign country will likely be required to pay taxes to two different countries: the country the property is located as well as tax obligations to the Internal Revenue Service (IRS).

These taxes can take on various forms. Some potential obligations can include

  • Property taxes. Arguably the most basic tax to come with property ownership, you will likely need to pay a local property tax for the property to the government of the country where the property is located.
  • Income. Property owners may seize the opportunity to earn some income by renting the property while they are away. This can trigger tax obligations in both the country the property is located as well as in the United States in the form of income taxes.
  • Sale. The property owner could be on the hook for capital gains taxes in the event the property is sold. This can be a double whammy, as the property owner could be responsible for both United States capital gains taxes as well as foreign capital gains tax obligations.

It is also important to properly report foreign assets. A failure to do so can lead to allegations of avoiding tax obligations. As such, it is wise for anyone that is considering purchasing foreign property or who already has such ownership to seek legal counsel to ensure proper tax compliance.

Tags: Blog, IRS, Tax Topics