How does buying or selling real estate change my expat taxes?
Buying or selling a real estate abroad has a drastic effect on your US expat taxes. Any gains on this real estate is subject to taxation, though if you have lived in the home as your principal residence, you are able to exclude up to $250,000, or $500,000 for those who are married, filing jointly. Note that even if the real estate was abroad, it is not considered Foreign Earned Income and therefore not applicable to the Foreign Earned Income Exclusion. You must also take into consideration the currency fluctuations, as this does have an effect on how much capital was really earned by your purchasing and selling of real estate overseas.
Gains from real estate can put you into a different tax bracket and drastically increase your US expat tax obligation; it is wise to talk to a tax planner before investing in real estate abroad.
Are capital gains included in worldwide income?
Capital gains are included in worldwide income. Gift, real estate, and inheritance taxes all apply to US citizens and Green Card-holders regardless of where they were located. You will also be taxed on any income from dividends or investments overseas.
There are different structures and exceptions for each type of taxation; it is suggested that you seek expat tax advice regarding any capital gains you expect to receive in a given tax year.
How do I give up my US citizenship?
It is becoming more and more popular for permanent expatriates to renounce their US citizenship in order to reduce their tax burden to the US government. Doing so requires the filing of all delinquent tax returns, including your final tax return. You must also complete Form 8854 and file it with your final tax return.
Note that once your citizenship has been revoked, you must turn in your passport and will be treated as a non-resident any time you come to the United States for a visit. Also note that you will never be able to receive US citizenship again after you have renounced your citizenship or Green Card.
What is FATCA (Foreign Account Tax Compliance Act) and how does it affect me as an expat?
FATCA (Foreign Account Tax Compliance Act) is an anti-money laundering measure that the government put in place to stop terrorists and tax cheats. It is also impacting US expats and the international banks and fund managers who have US citizen clients. Effectively, foreign financial institutions are required to report any of their clients who are US citizens to the IRS. If they fail or refuse to do so, they will be counted as “non-participating” and liable for a 30% withholding tax on all American assets; given that the American equity and bond market is the largest in the world, they feel obligated to register.
The IRS has this in place in order to ensure all financial and bank accounts are reported to both the IRS (Form 8938) and the US Department of the Treasury (Form TD F 90-22.1, or the FBAR). Do not be surprised if you find financial institutions or meet fund managers who are not interested in American clients; penalties for delinquency are put on the fund manager, meaning it could be quite expensive for them to accept you as a client if the necessary reports are not filed and the reporting can be extensive and expensive.
What about Social Security for expats?
As an expat, you are still entitled to the same US Social Security benefits of any other citizen of the United States. There are Social Security agreements with 24 countries to eliminate dual taxation when it comes to Social Security. These agreements determine to which country social security is paid based on residency, the duration of stay in that country, and who you are working for while living in your host country. For countries where there is no agreement in place, you may fall subject to dual taxation.
How should an expatriate plan for retirement?
Like the US’s Social Security, many countries have mandatory retirement savings programs that you must pay into as an employee. This is an area where you will need to plan ahead. It is advisable to invest in the currency in which you plan to retire. If you plan on retiring in the United States, you may wish to keep paying into Social Security and open US-based retirement accounts. If you plan on retiring abroad, you may want to open a retirement savings account in that country, but note the filing requirements for financial accounts abroad, including the FBAR and Form 8938.
Taxes can have a seriously detrimental impact on your retirement savings, especially if investing overseas. It is recommended that you speak to an expat tax advisor regarding your retirement planning options and how your US expat taxes will affect them.
How do I approach expat tax planning?
With the variety of aspects that go into expatriation and the taxes that are involved, it is suggested that you seek expat tax advice for taxation, investments and retirement planning while living abroad. These consultations can be extremely helpful for those who want to work through specific details regarding how they will be taxed while living abroad, how to save for retirement or any other aspect that goes into taxation. We offer consultation services which allow you to plan for your taxes according to your specific needs.
