US TAX ASPECTS OF OWNING REAL ESTATE  ABROAD

If you own real estate abroad the US income tax rules with respect to that property are almost the same as if the property were located in the US. On your U.S. tax return you would use the same depreciation rates, and the same rules with respect to income and expenses.    Owning the property alone does not require you to file any special forms.  However, some additional new forms may be required depending on your operation of the property and any foreign entities which may be used to hold title to the property.

If the property is your primary persona residence, and you live in it full time 2 out of the past five years you can claim the sale of personal residence  gain exclusion on the property ($250,000 if single or $500,000) if married and pay no taxes so long as your gain is less than that amount. However, if the real estate is a second home or rental property, you may not escape taxation on the sale of the property by using a tax free 1031 exchange. Foreign properties are not eligible under this code section.

The following additional forms may be required if you own a foreign property depending on the manner title is held and how the property is operated:

• Form 5471- For foreign corporations with more than 5% US owners.

• Form TDF 90.22-1- To be filed if any time during the year you had signature authority or an ownership interest one or more foreign bank accounts, financial accounts, debit card accounts, which together had at any time during the year more than $10,000 in them (collectively)

• Form 3520 and 3520A -Filed if you are a grantor, grantee or in someway connected with a foreign trust

• Form 926-Filed when property is transferred to a foreign corporation.

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• Elections with respect to certain foreign entities to treat as a pass-through entity.

Failure to file most of these forms can result  in the IRS imposing severe penalties unless you can show "reasonable cause" which is often difficult to prove.