Purchasing a real estate investment property abroad has specific tax implications, but the purchase itself does not need to be reported on your 2024 return. The act of purchasing the property does not trigger a U.S. tax reporting requirement.
Tax Reporting for Foreign Property
Be aware that you may be required to file a number of U.S. tax forms, depending on your exact situation as a foreign property owner.
For example, if you rent out your home abroad and open a bank account to collect rent, you must file a Report of Foreign Bank and Financial Accounts (FBAR) form if the aggregate value of all your foreign accounts is $10,000 or more “at any time during the calendar year.”
Other forms include Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations (if your property is held by a foreign corporation); and Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities and Foreign Branches.
Income Reporting:
- Rental Income: Any rental income from the property must be reported on your U.S. tax return. You can deduct related expenses, but you must allocate them between personal and rental use if applicable.
- Capital Gains: If you sell the property in the future, you will need to report any capital gains on your U.S. tax return. The gain may also be subject to foreign taxes, but you can claim a foreign tax credit to avoid double taxation.
Tax Breaks and Deductions:
- Mortgage Interest: You can deduct mortgage interest on the first $750,000 of secured mortgage debt for your primary and secondary homes, including foreign properties. Foreign property taxes have not been deductible since 2017
- Rental Expenses: If you rent out the property, you can deduct ordinary and necessary expenses for managing, conserving, and maintaining the property. This includes mortgage interest, property insurance, repairs, and maintenance.
- Depreciation: Foreign rental properties are depreciated over a 30-year period.
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