Foreign Real Estate & Form 8938 – Include Real Estate on Form 8938?
Real Estate is a very common Foreign Asset held by U.S. Taxpayers around the globe. The biggest problem with foreign real estate, U.S. Tax, and the IRS (Internal Revenue Service), is how to report the Foreign Real Estate to the U.S. Government
When it comes to filing a U.S. tax return, one of the most common questions we receive is regarding how a person is to report foreign real estate for U.S. tax purposes — and specifically, is it listed on Form 8938 (FATCA – Foreign Account Tax Compliance Act)?
Direct Ownership of Foreign Real Estate
Under most circumstances, if a person owns real estate directly, then the ownership foreign real estate is not reported on either the annual FBAR (Report of Foreign Bank & Financial Accounts) or Form 8938.
Real Estate & IRS Form 8938
Form 8938 is a creature of FATCA (Foreign Account Tax Compliance Act). It is a form that is required by certain individuals who meet the threshold requirement(s) to report their ownership or interest in various specified foreign financial assets.
What Type of Foreign Assets Do I Report?
Under most circumstances, the general type of assets included on a Form 8938 are bank accounts, financial accounts, ownership of foreign businesses such as partnerships, corporations or joint ventures, and more (exclusion, exceptions, and limitations apply).
One type of investment that is notably excluded from disclosure is foreign real estate when it is directly owned by the person.
Therefore, if you own a foreign property directly, whether or not you are using it for personal use, investment, or rental, it is usually not reported on form 8938 in most circumstances.
Ownership Through an Entity or Investment – Example
Let’s say for example that you have five rental properties in Costa Rica. And, you own these properties through a Sociedad Anonima – which is a common entity structure used in many Latin American countries to hold real estate.
In this type of circumstance, while you would not report each property on the form 8938 separately, unfortunately you do have to report the value of your interest in the foreign business – which includes the values of the foreign real estate.
In other words, you do not parse out foreign real estate from the overall value of a foreign business value you own or have an interest in, just because you exclude real estate from a Form 8938 when it is being held directly by a person.
Other International Tax Forms
If you happen to own foreign real estate in a foreign business entity common and chances are various other forms you may have to file either in addition to, or as an alternative to form 8938. In addition, as you can imagine there’re various penalties associated with not a timely and accurately filing these additional forms.
Out of IRS Form 8938 Compliance?
Typically, your best option for IRS compliance is to enter either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.