According to a recent article, an increasing number of Americans are looking for overseas properties. Certainly, one advantage to living on the East Coast is more reasonable travel times to many European and Caribbean destinations. With the help of technology applications like video chatting, it is also easier to stay in touch.
Before jumping on this trend and buying a vacation or rental income property overseas, however, a real estate attorney might caution about the due diligence needed to make an informed real estate decision. Correctly reporting the tax implications of a real estate purchase or sale is already a complicated task. Yet when a foreign property is involved, care should be given to additional issues.
For example, the rate of depreciation of a foreign property is 40 years, compared to the 27.5 years applicable to domestic rental properties. If an investor later decides to sell his or her foreign property, a U.S. Section 1031 (“like-kind”) exchange is only available for other foreign properties. Taxes may be due both at home and in the foreign country, although a tax credit is often available on the U.S. tax return to avoid double taxation. Even then, however, the credit may be subject to a cap, generally set at the amount of U.S. tax due on the earned rental income.
It is the job of a real estate attorney to help clients understand the tax implications and other potential business issues that may arise from a real estate investment or transaction. Our law firm focuses on real estate law and can conduct the due diligence needed to educate our clients about the benefits and consequences attached to a proposed transaction.
Source: Investopedia, “Do You Get U.S. Tax Deductions On Real Estate Abroad?” Jean Folger, Feb. 24, 2015