Will Your Overseas Property Soon Be Reported to the IRS?

Will Your Overseas Property Soon Be Reported to the IRS?
The OECD may soon require countries to report foreigners’ property holdings—adding new scrutiny for Americans abroad.|©iStock/PhotoFires

People thinking about diversifying their wealth globally often ask about their reporting obligations to the U.S. government… obligations which could soon become stricter.

It’s understandable that people would be worried about Big Brother in Washington, D.C., looking over their shoulder. The United States is the only developed economy that taxes its citizens on their worldwide income, no matter where it’s earned or where they live. (For every other country, you only pay taxes to your home government if you live in the country. Once you establish tax residency elsewhere, you no longer need to pay taxes on income earned abroad.)

Thanks to this “American exceptionalism,” Congress passed laws forcing all U.S. taxpayers to report their financial accounts abroad: the Foreign Account Tax Compliance Act and the Foreign Bank Account Report. Not reporting can lead to massive penalties. And foreign banks won’t keep your information secret… under FATCA, they can be excluded from the dollar financial system if they don’t.

Now, to be clear, I’m not advocating trying to avoid your legal obligations to the United States. But as we’ve seen with alarming frequency recently, the information the government collects can be used for nefarious purposes. Nobody should tell Uncle Sam any more than he or she is absolutely bound to do.

With this in mind, I’ve long recommended that Americans invest in real estate and other physical assets like gold, and to own them directly in their own names. Under current rules, such assets are considered personal property and not financial accounts. (By contrast, if you use a holding company or other structure to own such assets on your behalf, your interest in them is considered financial and, therefore, reportable.)

But now the Organization for Economic Cooperation and Development (OECD)—which includes the United States—proposes to include immovable property in the Common Reporting Standard, or CRS.

Since 2014 the CRS has required all participating countries to share their citizens’ financial information with each other. Reporting on crypto was added in 2022. Real estate is thus the only major asset class outside the reporting requirements of the CRS.

Under the proposals all CRS member states would be required to share information about property holdings by each other’s citizens. New purchases of real estate would also be reported. And when foreign citizens sell or rent properties, the resulting income will be reported to their home governments.

The OECD also plans to go after property owned by legal entities like trusts, foundations, or companies. Reporting requirements will be triggered if a beneficiary of such entities enjoys “ultimate effective control” over real estate—even if the trust is an entirely separate legal entity.

In addition to reporting requirements, the proposals say a taxpayer with average account balances of $200,000 over five years who acquires $2 million in foreign property will trigger automatic “source-of-funds” investigations.

There is one bit of good news, however: Not every OECD country belongs to the CRS… most notably, the United States. The question is whether that will shield Americans from the new proposals, too.

The U.S. isn’t a CRS member because the U.S. banking system is fragmented by state. Unlike other countries, there is no central database of accounts at U.S. banks, whether U.S. taxpayers or foreigners. But this has never been a problem: The U.S. is primarily motivated by policing its own taxpayers. In that respect, the U.S. system is functionally identical to the CRS as far as U.S. taxpayers are concerned.

This suggests that the U.S. government might be eager to add property reporting obligations to existing laws. Like everything else, however, this is a question of politics.

Although Donald Trump promised to end taxation of non-resident Americans during his campaign, he’s forgotten all about that now that he’s in office. And although limiting taxes and the IRS’s ability to collect them is part of Republican Party policy, they’ve never been very concerned about the impact on Americans who live abroad. On balance, I doubt that the U.S. under Trump and the Republicans will adopt new reporting requirement.

But future administrations probably will. The United States budget deficit is already extreme, and the recent One Big Beautiful Bill Act is making it vastly worse. A future government will be under immense pressure to raise revenue, and overseas Americans are an easy target.

So, whilst the immediate prospect of having to tell Uncle Sam about your foreign real estate is unlikely, I predict that it will arrive eventually. And there’s only one way to avoid this when the time comes… by giving up your U.S. citizenship, which implies that you’ve already gained another one.

For this and dozens of other reasons, that’s exactly what more and more Americans are planning to do.

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