What Americans Need to Know About Buying a Vacation Home in Other Countries

 

 

 

 

Are you an American who is interested in buying real estate abroad? Do you already own a vacation home outside of the United States? If so, there are some things to know about the tax implications and legalities involved. While there are plenty of lucrative investments in the US, branching out to other countries can grow your portfolio or help you find the vacation home of your dreams. Ready to buy a vacation home abroad? Here’s what you need to know first. 

Can I Buy a House in Another Country?

The short answer is yes: many Americans purchase homes abroad every year. Whether you’re dreaming of building a brand-new home for retirement or investing in a condo for occasional use, buying in another country can help you live the life you’ve always wanted.

Buying a home in another country can be complicated. It's important to research and understand the laws and regulations of the country where you intend to buy property, so you can enjoy the easiest and most lucrative investment.

Many countries have unique laws regulating foreign real estate purchases. For example, property buyers in Spain are required to create a will. Property buyers in Turkey cannot buy property in rural areas. And property buyers in Australia must get the property sale approved by the Australian Foreign Investment Review Board. 

On the other hand, some countries have very few rules about out-of-country real estate buyers. Canada doesn’t restrict foreign real estate purchases, making it easier to find and buy land.

You may also need to obtain special visas or permits depending on the country where you plan to purchase real estate. It's also important to consider any potential currency exchange risks, especially since it will be a large purchase.

Do US Citizens Have to Report Foreign Real Estate?

Yes, US citizens must report any foreign real estate they own or are interested in (for example, through a trust or partnership).

This includes both residential and commercial properties as well as undeveloped land. US citizens must report their foreign real estate holdings on their taxes by filing Form 8938 with their annual tax return.

According to USTaxHelp, foreign accounts that are managed by foreign financial institutions must also be included on Form 8938. Therefore, if the mortgage is lent from a foreign institution, that must be noted on Form 8938. Staying up to date with taxes is essential when successfully managing a property, so be sure to consult with a professional advisor. 

Additionally, if the total value of all your foreign financial assets is more than $50,000 at any time during the year (or $75,000 if married and filing jointly), you must also file Form 114 with the US Treasury Department. Failure to file these forms can result in hefty penalties from both the IRS and Treasury Department.

How Do I Sell My International Home?

If you want to sell your international home, specific steps need to be taken before doing so.

Ensure that all local laws regarding selling property are followed. Failure to do so can result in fines or worse.

It's also essential to consult with a qualified tax professional when selling your international home. They will be able to help ensure that all taxes owed on gains from the sale are paid correctly and promptly.

Finally, ensure that all necessary paperwork related to the sale is filed correctly if you want to sell your home faster. This includes completing any paperwork required by local governments to record your property's sale.

Here's a fun fact: inherited overseas property must also be reported to the IRS. Well, if you sell it, that is. There are additional rules and reporting requirements if you obtain foreign property through inheritance. Therefore, as mentioned above, it's best to consult a tax professional.

Preparing to Buy a Foreign Vacation Home

Buying or selling an overseas vacation home involves numerous legal and financial considerations that should not be overlooked or underestimated.

It's crucial for all Americans who own foreign real estate or plan on purchasing international property to understand their obligations. These include reporting income earned and taxes owed upon sale.

Doing so will help ensure compliance with US law while preventing potentially costly penalties. With proper planning and guidance from qualified professionals, Americans can successfully navigate all aspects of buying or selling an overseas residence.