US tax implications of buying property abroad: Full guide

This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise US Inc. or its affiliates, and it is not intended as a substitute for obtaining business advice from a Certified Public Accountant (CPA) or tax lawyer

If you're thinking of buying a property overseas or already own one, you're probably wondering about what it means for your US taxes.

Purchasing property in another country won't automatically create new US tax obligations, but earning an income from that property will.

As a US citizen or resident (Green Card holders included), you're required to report and pay taxes on worldwide income regardless of where you live or where your assets are located.¹

Here's everything you need to know about the US tax implications of buying property abroad.

We'll also introduce Wise — your international money transfer alternative. Use Wise to send stress-free transfers to over 140 countries - all at the standard mid-market exchange rate.

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Table of contents
Do US citizens pay taxes on foreign property? US tax implications of buying property abroad FBAR FATCA Foreign entity reporting Buying property abroad? Send money the hassle-free way with Wise Foreign rental income reporting Deductions for foreign property Primary residence exclusion Need to pay your US taxes abroad? Meet Wise

Do US citizens pay taxes on foreign property?

Simply owning foreign real estate doesn't automatically trigger reporting requirements. However, the moment that property starts earning money, or you sell it for a profit, you need to tell the IRS.¹

If you rent out your overseas property, that rental income must be reported on your US tax return (Schedule E of your Form 1040). This includes short-term rentals through platforms like Airbnb and long-term tenant arrangements.

When you sell foreign property for more than you paid, the profit counts as capital gains income. Depending on how long you owned the property, this will be taxed as either short-term capital gains or long-term capital gains.

That said, you may be able to reduce your US tax burden through exclusions and credits.

For example, the US Foreign Tax Credit allows you to offset US taxes with income taxes paid to foreign governments on the same income.²

Ask your tax advisor about exclusions and credits that apply to you.

US tax implications of buying property abroad

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FBAR

The Foreign Bank Account Report (FBAR) is a form you must file if your foreign bank accounts have more than 10,000 USD in them at any point during the year.³

When you buy property overseas, you'll usually need to open local bank accounts to handle the purchase. You may also have a foreign bank account if you live in another country or spend a lot of time there.

No matter the reason, you must report it if the total amount you have in these bank accounts is over 10,000 USD.³

This 10,000 USD threshold applies to ALL your foreign accounts combined. For example, if you have 6,000 USD in a German bank account and 5,000 USD in a Canadian account, your total is 11,000 USD, which means that you need to file the FBAR.³

Use the FinCEN Form 114 and file it by April 15. It's a separate form from your regular tax return, and you submit it electronically through the Financial Crimes Enforcement Network's online system (not to the IRS).³

FATCA

The Foreign Account Tax Compliance Act (FATCA) requires additional reporting for Americans with large foreign financial assets.

The FATCA requirement applies if:⁴
You're single, live abroad, and your foreign assets are worth 200,000 USD at year-end or 300,000 USD at any time during the year
You're married, filing jointly, live abroad, and your foreign assets are worth 400,000 USD at year-end or 600,000 USD at any time during the year
You're single, live in the US, and your foreign assets are worth 50,000 USD at year-end or 75,000 USD at any time during the year
You own property through a foreign company or keep property income in foreign accounts

In these cases, you'll need to file Form 8938 (Statement of Specified Foreign Financial Assets) with your tax return.

Foreign entity reporting

To buy property in certain countries, you'll sometimes need to create a local business structure like a corporation, a partnership, or a trust.

For example, in Mexico, foreigners often use a fideicomiso (bank trust) to purchase property in restricted zones near coastlines and borders.

These setups will often create extra US reporting requirements, including:⁴

• Form 5471 is required when you own or control a foreign corporation that holds your property
• Form 8865 covers property held through a foreign partnership, including joint real estate investments
• Forms 3520 and 3520-A are for foreign trust arrangements or a fideicomiso

If you're buying property abroad through a setup like this, make sure to consult with a tax professional to avoid incomplete filings with the IRS.

Buying property abroad? Send money the hassle-free way with Wise

Now that we covered some of the basics, the only question left is how to send money to pay for your property overseas?

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Foreign rental income reporting

Many Americans purchase foreign property as an investment to rent it out, especially in one of these best countries to buy property abroad.

However, when you do that, you should report that income on your US tax return the same way you'd report rental income from a domestic property. Even if your rental income stays in a foreign bank account, the IRS still wants to know about it.

The tax rules change based on how often you rent the property out and how much you use it yourself:⁴⁵

Rental days	Personal use	Tax treatment	What to report	What you can deduct
Less than 15 days	Any amount	Personal property	No rental income	No rental expenses
More than 15 days	Less than 14 days (or under 10% of rental days)	Business rental	All rental income	All business expenses (repairs, management fees, mortgage interest, depreciation)
More than 15 days	More than 14 days (or over 10% of rental days)	Vacation rental	All rental income	Expenses only up to the rental income amount - must split between business and personal use

You'll use Schedule E to report this income on Form 1040.

Deductions for foreign property

There are a few different ways to reduce what you owe on US taxes when you have a foreign property. Mainly, you can use the IRS's exclusions and credits to lower your tax bill, as well as business deductions if you run a rental property.

If you have a foreign rental property, deductible expenses include:⁴

• Mortgage interest on the property
• Property insurance premiums
• Property management company fees
• Maintenance and repairs
• Utility bills
• Costs to advertise the rental
• Legal and professional services
• Travel expenses for managing the rental
• Depreciation (over 30 years for foreign properties vs. 27.5 years for US properties)

However, you can't deduct foreign property taxes anymore after the Tax Cuts and Jobs Act of 2017.⁴

The Foreign Tax Credit (FTC) helps prevent double taxation when you pay income taxes to both a foreign country and the US on the same rental income.⁴

However, you can't exclude rental income from your foreign property using the Foreign Earned Income Exclusion (FEIE) because FEIE only applies to income from employment.⁶

There may be other deductions & exclusions that you can qualify for, so make sure to ask your tax advisor.

Primary residence exclusion

When you sell property for more than you paid, the profit is considered a capital gain. Since the US taxes its citizens and residents on their worldwide income, it's subject to US taxes.

However, if your overseas property is your primary residence, you may be able to avoid paying taxes on a big chunk of the profit when you sell it. This tax break, called the Section 121 exclusion, works the same whether your home is in the US or overseas.

If you're a single taxpayer, you can exclude 250,000 USD of capital gains, and if you're married & filing jointly, that threshold goes up to 500,000 USD.⁷

However, there are certain IRS requirements you must meet to qualify for this exclusion:⁷

• You owned the home for at least 2 years out of the 5 years before selling it
• You lived in the home as your main residence for at least 2 years out of those same 5 years
• You haven't used this tax break on another home sale in the past 2 years

If you qualify, this exclusion can potentially save you thousands of USD when you sell your home.

Need to pay your US taxes abroad? Meet Wise

Paying for your US taxes or receiving a tax refund can be tricky — the payment options are often slow and costly, and this doesn’t get better when you’re not in the country and/or you manage different currencies.

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💡 Learn more about how to report US taxes on foreign income in our full guide.

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The US taxes its citizens and residents on worldwide income.

If you earn income from your foreign property, whether it's rental income or capital gains from a sale, you must report it to the IRS. While certain breaks & exclusions can help you reduce your tax burden, you're always required to report.

In addition to taxes, there's another expense that comes with buying or owning a property abroad.

When you send money overseas for property purchases or mortgage payments, banks often charge high fees and use poor currency exchange rates with hefty markups. For large or ongoing transactions, these costs add up quickly.

For a simple and secure way to send money to 140+ countries with low fees and no currency exchange rate markups. use Wise.

Sources

1. IRS - Frequently asked questions (FAQs) about international individual tax matters
2. IRS - Foreign Tax Credit
3. IRS - Report of Foreign Bank and Financial Accounts (FBAR)
4. Tax Samaritan - Owning a Foreign Property
5. IRS - Topic no. 415, Renting residential and vacation property
6. IRS - Foreign earned income exclusion
7. IRS - Topic no. 701, Sale of your home

Sources checked 06/20/2025