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I am a U.S. citizen, and I own real estate in a foreign country. Do I have to report the foreign real estate to the U.S. government?

It depends on how the foreign real estate is owned (i.e., directly or indirectly) and what it is used for (i.e., as a personal residence or rental property).

Every year, U.S. citizens that either have an interest in foreign financial accounts or an interest in specified foreign financial assets are required to report their foreign accounts or assets to the U.S. government on Form 8938 or FinCEN Form 114 (Report of Foreign Bank and Financial Accounts), if the foreign accounts or assets meet certain reporting thresholds.

Foreign real estate held directly by an individual is not considered a foreign financial account or a specified foreign financial asset reportable on Form 8938 or FinCEN 114, but foreign real estate is often held indirectly through a foreign entity, such as a foreign corporation, partnership, trust or estate.

Foreign entities are considered specified foreign financial assets.  If the value of the foreign entity meets certain reporting thresholds, then the entity (but not the real estate itself) is reportable on Form 8938.  When determining the value of the foreign entity, the value of the real estate held by the entity is taken into account.

Having an interest in a foreign entity triggers additional reporting requirements.  For example, Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts), Form 3520-A (Information Return of Foreign Trust With a U.S. Owner), Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations), Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation), or Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships) may need to be filed, depending on how the foreign real estate is owned.

The above reporting requirements apply even when the foreign real estate is used as a personal residence only.  If you are renting the foreign real estate, then in addition to the above, the rental activity needs to be reported on your U.S. Individual Income Tax Return as well.  Furthermore, if there is a foreign bank account associated with your foreign rental property, then the foreign bank account may be reportable on Form 8938 and FinCEN 114 too.

There are serious penalties for failing to file any of the above returns.  If you own foreign real estate and failed to properly report it to the U.S. government, contact Brian Crepeau at bcrepeau@rosenbergmartin.com to discuss your available options.

Rosenberg Martin Greenberg

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Rosenberg Martin Greenberg

705 Melvin Avenue Annapolis, MD 21401
Phone: 410-727-6600
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