From luscious tropical beach condos to quiet village cottages, buying property overseas has been a dream of many Americans. This dream can be a reality and may even help you save on what you pay in US expat taxes! Investing in foreign property has its advantages and drawbacks. The investment is not one that you can tuck away in a shoe box under your bed until it matures. It requires ongoing care and maintenance, management and administration, support and research. But, as we will show you, the investment can be worth the work.
Here are a few good reasons why you should consider buying property overseas.
Paying less on US expat taxes
Owning a property in the USA comes with certain tax breaks. These tax breaks are also available for foreign property, both land and buildings. You can deduct property taxes, mortgage interest, and any points paid on the purchase. These deductions would allow you to lower your US taxable income, and therefore your tax. If you live in the property as your main home, you may also be able to exclude any gain from selling the house using the “Sale of Main Home Exclusion”. This exclusion could allow you to live overseas but never be tied down to one area for more than a couple years!
Purchasing property in a country with a relatively low cost of living can help you to stretch your retirement income. As you may know, retirement income tends to be fixed, but inflation is not. By retiring in a relatively low cost of living area, you can stretch your retirement dollars while seeing the world at the same time!
Tired of hotels and time shares? Owing a home in a foreign country not only allows you the freedom of comfortable home living while on vacation, but you can earn money when you are not there by renting it out. The rental income can help pay for the property while you are not living in it.
Earn income from another source
Purchasing a property overseas can help you to earn money. You can rent out the property as a short term vacation rental or as a long term lease. The income you earn from the property can help you to pay the mortgage and other expenses of owing the home. This income is subject to tax in the USA, and needs to be reported when you file your US expat taxes each year, but you can take all the expenses you have (utilities, taxes, etc.) against your income. Also, any foreign taxes you pay on the rental income would allow you to take the foreign tax credit and help you from being double taxed on your income.
No FATCA Reporting
The Foreign Account Tax Compliance Act (FATCA) requires the disclosure of interests in specified foreign financial assets. These reporting requirements are designed to ensure that US persons are reporting their worldwide income from investments/foreign assets. The value of real estate/real property is not required to be reported to the IRS or FinCen for FATCA purposes, as it is not considered a “specified financial asset”. Investing in real estate, just as you would stocks or mutual funds, allows you to avoid reporting the ‘funds’ on form 8938 or the FBAR. The property needs to be directly held in order for it to be exempt from FATCA reporting. Owning it through a foreign partnership or investment group would require additional reporting.
Diversify your holdings
“Don’t put all your eggs in one basket” is the old saying. In this case, the US investment market is the basket. As we all know the stock market controls most things, from bank interest rates to real estate prices. By investing in property overseas you are diversifying your holdings, insulating you from dramatic shifts in US market, and potentially opening you up to expanding or emerging markets in a foreign country. While the real estate market may not provide the potential investment windfalls that the stock market does, real estate has historically has good investment potential. Not only do you have investment in more than one stock market by buying overseas, you are also diversifying your holdings in the currency market. By having your investments all tied to US sources, your money is dependent upon the fate, good or bad, of the US dollar.
Make foreign residency easier to obtain
Like the US, there are many countries that require more than just your passport in order to stay for a long period of time. Owning a home or property in the foreign country can help you ease the way into residency.
Need help with your US expat taxes?
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