Are you thinking about buying a vacation or retirement home overseas? Milder climate, lower cost of living, and a sense of adventure are only a few of the reasons U.S. citizens are looking to spend time beyond our shores. But before you take that step, you should understand what the IRS has in store for you if you ignore its rules.
In some countries, such as Costa Rica, you might be advised to set up a corporation to buy and hold the property. And that’s where the IRS steps in …
U.S. citizens who are officers, directors, or shareholders in certain foreign corporations are responsible for filing Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. You would then include this form with your federal tax return.
Suppose didn’t know about that requirement or figured it’s just a home with no income so it’s not a big deal.
The truth is you could be facing a $10,000 penalty for each year you miss filing the form.
You can go to the IRS’ website (www.irs.gov) and search for more information. And be sure to get a CPA or tax attorney who knows our tax code inside and out before you close on your offshore dream home.