Many Americans hold property overseas that may have tax implications in the United States. You might own a vacation property in the Bahamas and are looking to sell the home. You might be working abroad and have a bank account in the United Kingdom. What kind of property a person owns will dictate their potential tax liability and reporting responsibilities to the Internal Revenue Service and, possibly, the Department of Justice. Whatever the property interest may be, you should understand the tax implications of owning property overseas and how that ownership needs to be reported to the United States government.
For those with foreign financial accounts with a total value of over $10,000, a FinCEN Form 114 needs to be filed. This form—more formally known as Financial Crimes Enforcement Network 114, Report of Bank and Financial Accounts— is not reported to the Internal Revenue Service but is filed separately from your tax return to the Financial Crimes and Enforcement Network coordinated with the Department of Justice. The FinCen Form 114 includes more than just bank accounts. The form includes mutual funds, trusts, retirements, and brokerage accounts, among other types of accounts.
Another important form to note for taxpayers living abroad is IRS Form 8938. This form is necessary for individuals to file if the overall value of all of their foreign accounts in which they hold interest is over a specific reporting threshold. For instance, for an unmarried individual, it is necessary to file Form 8938 if the total value exceeds $50,000 on the final day of the tax year or if that account is worth more than $75,000 during that period.
For those individuals who have made a real estate sale abroad or are considering making one, it is imperative to investigate the tax implications of the sale. There are several factors that will be at play, from where the property is located to where the money from the sale went. For U.S. taxpayers who have made foreign property sales, consulting an experienced tax attorney can help them navigate their potential tax liability.