Thinking of buying a house in Spain as a US expat? You’re not alone. The number of Americans living in Spain has been on the rise, and many are finding their dream homes in this beautiful Mediterranean country.
However, before you make that big decision, it’s crucial to understand the implications of the US tax system on buying property abroad and the different Spanish visas available for expats.
US Expat Boom in Spain
Between 2019 and 2021, the American expat community in Spain grew by an impressive 13%. These expats are not only retirees seeking a life of leisure but also adventurous digital nomads who work remotely from foreign shores. Unsurprisingly, many are drawn to Spain’s vibrant cities and stunning coastal areas.
Urban Areas and Valencia
American expats tend to gravitate towards urban centers like Madrid, where there are ample job opportunities and a rich array of amenities. Additionally, there’s a growing interest in the city of Valencia, which boasts a large and welcoming expat community.
Spanish Visas for Expats
If you’re considering a move to Spain, it’s essential to know about the different types of visas available for foreigners. The Spanish government offers various options to cater to different expat circumstances.
Visa for Digital Nomads
Are you a remote worker who can work from anywhere in the world? Spain has a visa designed just for you! The digital nomad visa makes it easier for international remote workers to relocate and work in Spain while enjoying the country’s fantastic lifestyle.
For those willing to invest in the Spanish property market, the golden visa offers an enticing opportunity. If you purchase property in Spain for over 500,000 euros, you can obtain this visa, which allows you to reside, work, and enjoy additional rights in the country.
Retirees or individuals with passive income who no longer work can opt for a non-lucrative visa. This visa is perfect for those seeking to enjoy their retirement years in Spain or spend extended periods without employment.
US Tax Implications of Buying a House in Spain
While finding your dream home in Spain is exciting, it’s vital to consider the US tax implications involved. As a US expat, you are still subject to US tax laws, even if you live and work abroad. Here are some key points to keep in mind:
Foreign Earned Income Exclusion
US expats can exclude a certain amount of their foreign-earned income from US federal income tax. For the 2022 tax year, this exclusion was $120,000. However, this exclusion does not apply to passive income, such as rental income from the property in Spain.
Reporting Foreign Assets
If the total value of your foreign financial accounts exceeds certain thresholds, you must report them to the IRS using FinCEN Form 114 (FBAR) and Form 8938 (FATCA). This includes foreign bank accounts and possibly foreign real estate if you own it through certain structures.
Foreign Tax Credits
You may be eligible for foreign tax credits on your US tax return for any taxes paid in Spain on income derived from the property or other sources.
Estate and Gift Taxes
If you own real estate in Spain, it may have implications for your US estate and gift tax planning.
Expats Overseas, one-stop-shop filing for expats
Filing US tax living abroad can be a complex process. However, you don’t have to navigate the nuances of the US tax code and your local tax system alone. Expats Overseas is here to help. Our network of expert tax advisors specializes in expatriate taxation and can accurately and efficiently file your US tax return(s) and navigate the local tax system.
By partnering with Expats Overseas, you can prevent double taxation, take advantage of tax credits you’re eligible for, and ensure compliance with both US and local tax laws.
Don’t let the complexities of expat taxes overwhelm you – contact Expats Overseas today to get started on your tax journey.
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