Buying a property overseas has become a profitable venture. People from 3rd world countries like India can afford a better house in America compared to their own country. Add the fact that buying and selling as well as renting properties in US is also seemed as highly profitable investment. But after you buy a property abroad, you would have questions like:-
· What should I do to prepare my property for rental?
· What questions should I ask of a property manager?
· What are the specific regional legalities that I should know?
· What are the tax implications of owning rental property?
Buying any type of real estate property requires managing the same later especially in case you are not moving abroad to reside there. Owning a rental in another country can be complicated and in America each state has different rules and regulations. A rental property overseas requires dual management, 1 is rental management managing tenants and other is the property management itself meaning repairs and maintenance as well as adding new amenities. You real estate agent as well as private money lender can manage the rental property for you including finding tenants for the same. Rental management companies can also offer their services with their own charges.
Understanding the foreign ownership laws is also essential when it comes to buying a property abroad. Real estate agents and law attorneys can great help you out before you finalize the deal. If you are planning to move abroad to your new home, you should be aware of the cost of living and different culture as well. If you research, plan and budget ahead and accordingly, things will be easy.
In case you are buying a vacation home, in which case you will need to plan your exit properly as well as in many countries, home can stay on the market for months or years. Understanding local market situation is essential. Mortgage lenders can help you out in not just buying a property abroad, but also manage it. Without proper research and guidance, you can save time and money.
Regarding the taxes, US expat taxes will have its impact during the sale of your foreign property. But if you have owned and lived in the home for at least 2 or 5 years, you would be eligible to exclude a gain of around $250,000 to $500,000. Otherwise the gain will be taxed at capital gain rates. Although even in case the gain does not qualify or not wholly excluded, it will be considered as foreign tax credit but not as foreign earned income and that is why it shall not be excludable under the foreign earned income exclusion. It will also wise that you discuss your options with your host country’s US embassy when it comes to investing in real estate properties in America.
Note that IRS has special reporting requirements for foreign legal entities when it comes to owning a property in US. We encourage you to contact us in case you are considering buying a property in US.