As we continue to endure the long winter, many of us start dreaming of trips to a summer cottage or cabin out of state for some quiet relaxation—or we start to gear up for renting out a summer property to vacationers. Although there are estate and income tax considerations that should be addressed for the ownership of out-of-state property, any issues usually can be solved without much difficulty upon consultation with your local attorney and CPA.

But what if you own a home or rental property in another country?

This is often more complicated, not only in navigating the legal issues of owning property as a foreigner, but also in avoiding unexpected U.S. and foreign tax consequences.

For example, you may be wondering what happens if the property passes through your estate. Will you owe estate tax in that foreign country? Might there be a foreign income tax liability at your death? Are there tax consequences if you want to gift part or all of the property to your children? The rules in the foreign country may be contrary to US tax rules and not what you expect.

If you rent the property to others, you may need to file foreign income tax returns, and you could be liable for local hotel, occupancy, or sales taxes. If you sell the property, the government might assess tax on the gain, or even withhold tax at closing on the gross sales price.

The important thing is to understand in advance the tax rules of the foreign country where the property is located, the US reporting requirements associated with the foreign property, how the rules interact, and how any transactions or transfers will be need to be reported.

Our professionals can help you address the U.S. tax implications and work with your foreign accountant and attorney who may be handling any foreign reporting requirements. With our international network of accounting firms, we can refer you to a reputable tax adviser in the foreign country where you own a home or rental property.

Stay tuned next week for some real-life examples of issues that can arise with the ownership of foreign real estate.


Learn more about our International Tax Services here.