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Your FBAR obligations when you purchase or sell real estate abroad

Purchases of real estate abroad used to be a relatively uncommon occurrence — but the prospect of owning foreign real estate has grown in popularity over the past few decades. Nowadays, many individuals own second homes or vacation rentals abroad. 

This increase in the popularity of foreign real estate ownership over the past few decades means an uptick in both purchases and sales of such properties. This has led to an increased focus on the tax obligations that Americans who own these properties have, including filing the Internal Revenue Service’s (IRS) Foreign Bank Account Report (FBAR). 

When must you report real estate transactions you make abroad to the IRS?

The purchase of real estate abroad doesn’t generally have to be reported to the IRS. However, you have to report any transfers of funds over $10,000 that you make to a foreign bank account intending to buy a property abroad, though. You also have to report any real estate transactions that result in you generating an income. 

Any American who transfers $200,000 or more into their foreign bank account to purchase real estate abroad triggers another reporting requirement. They must do an extended FBAR 8938 filing. You have an obligation to report any potential gains you may make on your foreign mortgage, as well. 

As a downside to owning real estate abroad, existing IRS codes consider your home abroad as personal property so you’re generally not able to take a deduction for any losses you might suffer when selling it later. (You may, however, be able to take a deduction for losses if you used it for explicit business purposes.)

Making sense of your obligation to file the FBAR and best prepare yourself to do so can prove challenging. You may find it helpful to receive skilled guidance as you navigate these legal obligations the IRS imposes on you.