Knowledgeable investors can find some great real estate investments in foreign countries. You do need to be aware of many more laws regulations though when you make these investments and there often are some financial risks that you might not normally see when investing in US properties.
For US citizens that invest in real estate outside of the United States there are special reporting requirements that may be imposed. Rental properties will create income and expenses that must be reported on your US tax return and will also require filing a foreign tax return for the country where the real estate is located.
Often times though real estate will be held in an entity such as a trust, partnership or corporation. All of these entities will require a special information return to be filed disclosing information to the IRS about this foreign entity.
Forms, there are forms
Investors also may setup a bank account or investment account in the country where there real estate is located. This may mean that an investor will be required to file two information returns (A form 8938 required in 2012 and an FBAR TD F90-22.1). Not all foreign bank accounts will require an information return but it is important to be aware and file if it is required. Form 8938 requires much of the same information that is on the FBAR but is not subject to the same disclosure requirements.
Penalties can be very significant for not filing these information returns. Not the least of these is the $10,000 fine for failure to report. There are several other penalties as well and they can add up fast.
If you are a US investor with real estate abroad I would strongly recommend seeking a tax professional familiar with these tax regulations. They can also review your foreign entities and financial investments to insure that any and all information returns are filed timely.
I will follow up next time with issues that a foreign investor should consider when investing in US real estate.
Related posts:
About Charles Perkins
Thanks Charles for the great article on the specific requirements for US citizens.
We manage investment properties for quite a few US citizens through Czech Republic including Prague and I know that the specific requirements are cumbersome.
Looking forward to your article on foreign investors purchasing in the US!
Nathan
Your welcome Nathan.
Anyone starting to invest in other countries will find many possible landmines to work around. Tax and reporting issues are but one part of the issues that can come up. Lending practices, title practices, contracts and dealing with buyers and sellers can be challenging as well.
Getting knowledgeable advice and assistance can make these transactions less risky and more profitable.