Moving Yourself or Your Money Outside of the U.S.: What You Need to Know

by | BiggerPockets.com

If you have lived and worked in the United States your entire life, odds are good that you’ve experienced wanderlust at some point. And while everyone needs a vacation once in a while, some investors have their eye on a more permanent move. If you’re considering this, it’s natural to wonder what restrictions you may encounter if you decide to leave the U.S., especially since you’re most likely going to want to take your money with you.

So before you start packing, you’ll want to be aware of your responsibilities when it comes to taxes and the law. Uncle Sam likes to be in-the-know about your foreign assets, bank accounts, and other types of investments. In fact, U.S. citizens who move abroad have two clearly outlined legal obligations that they must be mindful of. This article will explain these obligations and what they mean for expats.

Foreign Bank Accounts

The first thing Uncle Sam will still be keeping tabs on is the value of cash in your bank accounts. If you have a combined $10,000 or more—even spread across multiple accounts—you are obligated to report this currency. Similar rules apply to non-cash assets. However, for other investments, the threshold is substantially higher. You can hold foreign stocks, real estate, and other assets up to $50,000 without reporting it. However, we recommend you report all assets, including things like ownership of foreign companies, to be on the safe side. After all, nobody wants to end up on Uncle Sam’s bad side.

How do you report these assets? Simple. You will use a form called FinCEN Form 114, Report of Foreign Bank and Financial Accounts for cash assets that exceed $10,000. You will use a separate form, IRS Form 8938, Statement of Specified Financial Assets, for other types of assets in excess of $50,000. Both of these forms must be filed annually. This is the extent of the first major legal obligation you have as an American citizen residing in a foreign country.

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Related: How Debt & Taxes Make the Rich Richer and the Poor Poorer

Tax Obligations

No matter where you move in the world, unless you plan on revoking your United States citizenship, you are never totally free of tax obligations. As a U.S. citizen, you are required to pay income tax on any money that you earn from work or other investments, even if that money originates outside of the United States. This is one of several reasons the U.S. routinely boasts a high gross national product—because you literally cannot outrun the taxman, at least not in terms of geography.

So even if you earn all of your money on foreign soil and don’t return to the United States within a  year, Uncle Sam still requires you to pay federal income tax. You read that correctly: You pay income tax even if you don’t set foot on American soil. Certain countries, however, have treaties that allow for American citizens to receive a tax credit provided they are paying income tax in the country where the income is earned. You may still end up having to pay some taxes directly to the U.S., but if you live in a treaty country and pay your taxes there, you’ll be paying less than if you were doing the same job and making your entire living  within the U.S. If you’re not sure if the country you intend to live in has such a treaty with the U.S., you can search online for a complete list of countries that allow for this type of tax treatment.

I wish I could say there was a compelling government interest or ethical reason for this tax issue, but it really just comes down to dollars and cents. Uncle Sam wants his money, and isn’t about to start making exceptions on the matter.

If you’re just a protester by nature and really don’t want to pay taxes (perhaps out of moral conviction, or perhaps because you’re as greedy as the U.S. government), there is a way to do that. But you’re probably not going to like it. The only way to permanently keep Uncle Sam out of your pockets is to actually renounce your U.S. citizenship. If you never plan to return to the U.S., this could be an option for you. But be advised that this comes with tax obligations all its own, and it’s a lengthy process. Renouncing your citizenship is also a surprisingly costly process–it’s not just as simple as signing a piece of paper saying you don’t feel like being an American anymore. Of course, there are also social consequences to doing this as well (you could pretty much rule out any possibility of dining with the President). Frankly, most folks would rather simply comply with tax law.

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Related: Story From a CPA: The Time an Investor Paid a $96k Tax Bill He Shouldn’t Have

Meeting Your Legal Obligations in a Foreign Country: An Example

Let’s say you fell in love with your dream woman and she happens to be a citizen of Austria. She simply can’t bear the thought of leaving her dear old Mutter, so you decide you’re going to move to Vienna. To pay for your home, your dream wedding, and frequent dates to the State Opera House, you decide to move some of your cash to an Austrian-based bank account to the tune of $99,000.

Now, let’s say that same bank account generates $10,000 in your first year in Austria. Because you’re a good global citizen, you’re going to pay your taxes in Austria. Let’s imagine that costs you $1,000. You’re not done yet. In addition to complying with Austrian law, you will also have to fill out FinCEN Form 114 (FBAR) to disclose the foreign bank account balance to the United States. The FBAR form filing is due by June 30th for the prior year’s accounts. You would also need to file IRS Form 8938, since the account was at or over $50,000. That particular form is due with your annual tax return.

And you’re still not done. In addition to filing the above forms, you will also be required to pay income tax on the $10,000 you made in Vienna. That’s considered taxable income in the U.S.

Now fortunately, the $1,000 you paid to the Austrian authorities will be credited on your taxes, because Austria and the United States have one of those handy dandy treaties mentioned earlier. Once you’ve squared up with Uncle Sam, your obligations are met. Uncle Sam has no estimates on how long it will take for your head to stop spinning once you’ve completed this process available at this time.

These are simply guidelines. Your actual tax and legal situation can vary depending on which country you intend to move to and whether that country has a tax treaty with Uncle Sam. The possibilities and their variations are endless. So if you are certain that you plan to leave the country, talk to an attorney first to make sure you have your business squared away. Bon voyage!

Any questions regarding these guidelines?

Leave them below!

About Author

Scott Smith

Scott Royal Smith is a real estate asset protection attorney based in Austin, TX. His firm, Royal Legal Solutions, designs asset protection strategies exclusively for real estate investors. As an investor himself, Scott is sensitive to the needs of real estate investors; as an attorney, he maintains a working knowledge of the best legal strategies available for preventing lawsuits. Connect with Scott here on BiggerPockets or visit his website, www.royallegalsolutions.com, for more information about asset protection for real estate investors. Check out all of Scott’s previous work for BiggerPockets here.

10 Comments

  1. James Rodgers

    I recommend readers consult with multiple sources, not just rely on this article.

    Unless there are new requirements I’m aware of, there are no US reporting requirements for foreign real estate, unless there is a financial account related to it, over the requisite amounts.

    If used as a rental, you will probably have some Schedule C reporting to do, but if it is just a home you own — no reporting required.

    If I’m mistaken, I’d love to hear some citations supporting the original view.

  2. Randy Chavers

    I agree with James Rodgers suggestion to consult other sources. The $50,000 rule, as I understand it, applies to non-physical “financial assets”, i.e. , stocks, bonds, etc. -not real estate, as the article seems to imply. I work as managing director for real estate offices in 15 countries. If there is a limit to real estate ownership based on value, aside from collected rents, I am unaware of it.

    • Scott Smith

      Thank you for pointing this out–I was not attempting to imply real estate itself was necessarily reportable. Some investors choose to report real estate under the logic that it’s best to document everything when it comes to the IRS. As you concluded, income generated from real estate is reportable. Real estate itself will depend on the laws of the foreign country in question as you well know.

      And I agree with you and hope nobody would rely on a single resource for such a significant move. This is an educational article intended to make people aware that they may still have obligations. It’s absolutely not a substitute for personalized advice from a tax preparer, CPA, or attorney who is familiar with your situation. Thanks for the feedback!

  3. Michael Beur

    Good Morning to all of you.

    Interesting time to read this article. I am a Real Estate investor(Rentals) and planning of moving to Ecuador next year. As I am selling some of my properties, and intending to send around $200.000.00 to there and open an CD account which pays 6.25% for one year CD(Their currency is Dollar as well). Need that money later to built a home. I am going to keep some of my Rentals in USA and just hire a property manager.
    Based on this Article, If I send the Money there, do I have to report the interest as I my income in US?

    Thank you in advance for the input of any of the members.

  4. AJ Wilson

    The solution to your Austrian example is to put the $99,000 in your new spouse’s name and let the income accrue to the spouse. Then the responsibility to report it annually to the IRS will fall away. A married couple with different citizenships should probably keep the majority of assets in each location in the name of the citizen. Seems like it would save lots of paperwork.

  5. Calvin Lipscomb

    The skinny, revoke your citizenship and be done with it. If you are not willing to do that then you should ask yourself why. If you fall into the problem of not reporting foreign assets and transactions with the IRS it can become painful and difficult to resolve.

  6. Katie Rogers

    Revoking citizenship is a major step, not to be taken lightly, and maybe not for such a reason as to save a few dollars or evade a reporting requirement. Usually you have to become a citizen of somewhere else. Being stateless is probably not an option. Wherever you decide to become a citizen, first they have to accept you and whether they do or don’t, you still have to pay taxes to a government somewhere. For example, even though I am not a citizen of Canada, I still had to pay capital gains tax when I sold some property there. Most countries are like that.

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