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If you are planning a move abroad, maybe for work or just for a lifestyle change, you may be wondering how to maintain U.S. residency while living abroad – and what the tax consequences of your decision will be. It’s important to fully understand your requirements, so there will be no surprises come tax season. Here are a few US expat tax return facts to consider if you think you’ll want to keep your US home while living abroad.
If you’re in the planning stages of moving and aren’t sure how your US expat tax return will be affected by keeping a U.S. address while living abroad, there are a few things to consider. Simply maintaining your US home is not the same as renting it out, as you’ll see below.
Perhaps you intend to keep your home in the US, but don’t want the additional responsibility of renting it out. Generally speaking, in this scenario, you’ll have no additional tax responsibility. It does depend on how you intend to qualify for the Foreign Earned Income Exclusion (FEIE), though. If you use the Physical Presence Test, there will likely be no impact on your US Tax Return.
If you use the Bona Fide Residence Test, however, you might need to state a reason for retaining your US property if you are living full-time in a foreign country with no intention of returning back to the US. This is because the key factor in using the Bona Fide Residence Test is that the IRS only considers you a bona fide resident if you don’t plan to return to the US – and maintaining a residence there might be viewed as an expectation of returning at some point.
Choosing to rent out your US home can be a nice way to recoup the costs of maintaining the home while you’re abroad, but doing so does not come without its challenges related to your US expat tax return. The effects of renting also depend on how many days out of the year your home is rented.
The four situations above are the general consensus for handling expat taxes for your US residence, but it’s a good idea to consult with an expat tax professional regarding your individual tax situation. To learn more about the ins and outs of filing expat taxes, download a US expat tax guide for details. This can explain U.S. citizens living abroad and permanent addresses
Our dedicated CPAs and IRS Enrolled Agents are here to help by making the expat tax filing process as straightforward and hassle-free as possible. Get started with us today and cross taxes off your to-do list well ahead of the deadline! Plus, learn how to maintain U.S. residency while living abroad.