Purchasing International Property Reveals Unique Complexities
According to the U.S. Census Bureau, during the second quarter of 2018, the home ownership rate in the U.S. rose to 64.3 percent. This statistic shows just how much Americans value home ownership, which makes sense because home ownership and the American dream tend to go hand-in-hand. And even though the financial responsibility of home ownership can be frightening to some, it’s substantially outweighed by a slew of intangible benefits. For example, the tax benefits of home ownership or real estate property in the United States includes mortgage interest deductions, depreciation of rental property and capital appreciation upon a sale, all of which results in significant savings for the home owner.
Now, what if you wanted to take your dream of home ownership outside of the country by purchasing a second family home or a vacation getaway in Brazil, South America or Thailand? While that might sound like another dream come true, there are a few things to consider before (not after) you put down the cash on the down payment.
Also read: Start Saving Hundreds On Your Property Taxes
As a U.S. citizen, simply purchasing real estate property is not a reportable, taxable event. However, purchasing or selling foreign real estate property is a different, more complex matter. For example, transferring funds from the U.S. to a foreign country can give rise to Foreign Bank and Financial Accounts (FBAR) requirements on Form 8938. Even having a balance as low as $10,000 for a single day in a foreign account can be reportable action to the IRS.
If you are considering buying real estate in another country, it’s important to explore how international property is titled and whether it should be held by either an individual or a foreign corporation. Ownership of property by a foreign business requires the property to be reported on Form 8938.
Additional complications come into play when the time comes to pass your international property on to someone else, either by way of a sale or inheritance.
If selling the property, the transaction may have to be reported on your applicable tax return. For Americans inheriting international real estate property, you may be required to pay an inheritance tax in the country where the property is located.
Purchasing a second home outside of the United States is a little more complex than deciding whether you would rather invest in beach-front or mountainside property. Therefore, it’s imperative to have a team of professionals to help you with such real estate transactions to help you mitigate any complex and unforeseen financial issues. Our construction and real estate service team is happy to answer any questions you may have about international property ownership. Contact Rea today or make an appointment to speak with your current Rea advisor to learn more.
By: Luke Lucas, CPA (Cleveland office)