Understanding Tax Implications on Foreign Real Estate

Every person has a dream of settling in a location where they yearn to go or spend time either alone or with the family. This dream of settling in a foreign land is there within many of us and for the people spend on real estate in that country. 

Now, for a citizen of the United States, there are certain tax compliances and exemptions for people who are investing abroad in the real estate properties. In this blog, we will look at some of these exceptional rules and regulations provided by the IRS and the government, as well as the ins and outs of buying, renting, and selling a place in a foreign land. 

  1. Property for Personal Purpose 

In the U.S., the tax treatment is the same whether a person is buying a home in the country or a foreign land. A person who is buying a home for their personal use can deduct the mortgage interest of the properties from the tax papers. 

One can consult with a tax attorney in San Diego, CA, or at another location, and based on that, they can check whether they are eligible for that deduction, as there is a certain threshold for the eligibility. 

  1. Rental Property in Foreign Land 

Till the property is for personal use, a person doesn’t need to worry a lot about the differences in taxes until one makes that asset into a revenue stream. It is possible to make the property a rental one, and that attracts different types of rules and regulations. 

Now, the IRS has the rule of a fortnight, which doesn’t consider the rental income below 14 days. It means that if a person rents it out to a guest who is below 14 days old, then that income may not be reported. 

In general, the property that one has purchased has been considered a personal residence, which gives the individual the advantage of the mortgage deduction. Still, it doesn’t consider any rental losses. 

  1. Implications of Capital Gains From Real Estate Sales

The third clause comes when a person sells their foreign property, and if the trade is profitable, then the person falls under the section of capital gains tax. The general tax norm of the IRS is that if a person is selling a property that has been with them for more than 5 years, then for them, it’s considered a residence, a factor that can have implications for impact funds and other investment strategies.

However, they can deduct 250,000 USD from the main sale and 500,000 USD if they are married and they can give capital gain tax on the rest of the sales amount. One can hire an IRS tax audit attorney who can check the files and find any discrepancies, which will protect the person from any errors and mistakes. 

The Final Thoughts

Here, a person needs to stay aware of the U.S. tax forms they are filing, and if a foreign property is giving an income, then a person must report on a Foreign Bank and Financial Accounts form so that they can report files properly. 

Through these steps, one can navigate the tax clause and buy/rent/sell property in a foreign land by maintaining compliance with the country.