Owning Foreign Real Estate 2025:
What to Know (Part I)
Bringing home a souvenir from a favorite travel spot—a handcrafted bowl, a colorful scarf, or a fridge magnet—makes for great memories and simple purchases. But for some adventurers, a vacation just isn’t enough. They want to plant deeper roots—a beach house in Mexico, a vineyard in Italy, or a countryside escape in New Zealand.
But unlike a souvenir, owning foreign real estate isn’t something you can tuck into a suitcase. It’s tied to local laws, customs, and taxes, even when owned by someone living halfway across the world. That’s why Americans buying foreign property need more than just a dream—they need a smart plan and the right advice.
This guide outlines what U.S. buyers should think about before and after buying real estate abroad, from choosing the right ownership structure to understanding the taxes they might owe.
The Four Key Areas Every Buyer Should Understand
U.S. buyers need to get help in four major areas:
- Hiring local legal experts in the country where the property is located
- Understanding tax and reporting rules in both the U.S. and the foreign country
- Choosing the right way to hold the title (individual ownership, a trust, a company, etc.)
- Planning what happens to the property after they pass away
1. Know the Local Laws First
No matter who owns the property, it’s always governed by the laws of the country where it sits. That’s why the first step in any foreign real estate purchase should be hiring a local lawyer—someone who knows the real estate rules inside and out.
Local laws vary widely. Some countries welcome foreign buyers with open arms. Others restrict or even ban them from owning land. Rules might change depending on the region within a country. Some nations require special permits, and some won’t recognize your U.S. estate plan when it comes to inheritance.
There may also be rules about:
- Passing the property to heirs (which may differ from U.S. norms)
- How the property is used—vacation, rental, full-time residence, or remote work
- Immigration consequences if you plan to live there for extended periods
Buyers often need a team of experts: a real estate attorney, a tax advisor, and maybe even an immigration or estate planning lawyer. These professionals don’t always work in the same firm—or even the same area. That’s okay. The important part is that they understand how to help non-residents buy property and can coordinate across borders.
And don’t forget about the language! Buyers need to make sure they can understand and communicate clearly with their advisors—not just in the literal sense, but also in terms of expectations, timelines, and cultural differences.
2. Watch Out for Taxes (Both Here and There)
Buying property overseas isn’t just about the purchase price. You’ll likely owe taxes in both the U.S. and the foreign country, and that can impact everything from your annual income to how much you leave your heirs.
Here’s what to look out for:
U.S. Taxes
Even if your property is in another country, the IRS still wants to know about it. U.S. citizens and green card holders must report their worldwide income, and that includes rental income from a house abroad.
You might also face:
- Estate and gift taxes when transferring ownership at death
- Information reporting requirements, including forms like FBAR or Form 8938
If you earn rental income, it could be taxed twice—once in the foreign country and again by the U.S. Tax credits and treaties may reduce the sting, but they don’t always eliminate it entirely. You will need to hire tax professionals in that jurisdiction each year, and your US accountant will look at the foreign tax return to prepare your US return each year.
Foreign Taxes
You’ll also have to comply with local tax laws, which may include:
- Property taxes
- Income taxes
- Rental income from short term v. long term leases
- Inheritance or estate taxes
- Wealth taxes
- Other local reporting rules
Each country defines residency differently. Accidentally staying too long could turn you into a tax resident. Some countries offer tax breaks for newcomers—but only for a limited time.
Further, some countries like Italy, charge tax on the rental rate in the lease, regardless of whether you actually receive that rent from the tenant or not.
Hiring a tax professional who understands both U.S. and foreign tax systems is essential. They can help you stay compliant, avoid penalties, and sometimes even reduce your total tax bill.
3. How You Own the Property Matters
You can’t just buy a foreign home the same way you’d buy a U.S. one. Some countries don’t allow foreigners to hold title directly. Others might require the use of a local company or trust.
But even if a structure works locally, it could cause problems back home.
For example:
- The U.S. treats revocable trusts and single-member LLCs as “ignored” for tax purposes—they’re not considered separate legal entities.
- But the foreign country might treat them as independent taxpayers, causing confusion and double taxation.
Worse still, some foreign entities (like certain trusts) may be taxed harshly in the U.S.—especially if you’re not careful when moving money in or out. One common trap is Section 684 of the Internal Revenue Code. If you transfer property into a foreign trust, the U.S. may treat it as if you sold it and immediately tax the capital gains—even though you didn’t actually sell anything.
Bottom line: Have a qualified U.S. tax advisor review any ownership structure before you sign anything.
4. Plan Ahead for What Happens After You’re Gone
Just like with U.S. property, you’ll want to plan how your foreign real estate passes to your heirs. But this gets tricky when multiple legal systems are involved.
Your Will from the U.S. might not hold up in a foreign court. Some countries don’t allow you to leave property to whomever you choose and may favor spouses or children regardless of your wishes.
That’s why it’s important to coordinate your U.S. estate plan with local estate laws. The right planning now can save your heirs a lot of confusion—and a hefty tax or legal bill—later.
Final Thoughts on Part I of Owning Foreign Real Estate: What to Know
Buying real estate abroad can be a dream come true—but only if you do it right. From legal issues to tax headaches, the process can be full of surprises. But with the right team of experts and a little bit of foresight, you can make sure your piece of paradise remains a source of joy, not regret.
Before you buy, slow down. Ask questions. Get good advice. Because in international real estate, planning isn’t optional—it’s essential. And make sure you read the next installment for all you need to know about Owning Foreign Real Estate. Let us know if you have any questions, (480) 525-6244, or email us anytime.
