How to handle US Taxes while living abroad in New Zealand? Foreign income challenges

You've asked some great questions! As a US citizen, you'll need to file US tax returns regardless of where you live - the US taxes based on citizenship, not residency. However, there are some provisions that can help you avoid double taxation. First, look into the Foreign Earned Income Exclusion (FEIE), which allows you to exclude up to $126,500 (2025 amount) of foreign earned income from US taxes. There's also the Foreign Tax Credit, which gives you dollar-for-dollar credit for income taxes paid to New Zealand. For your rental property in the US, you'll report the income and expenses on Schedule E as usual. Even if you're breaking even, you'll need to track everything carefully since depreciation must be taken into account. Regarding your 401k, you can generally continue contributing if you remain employed by a US company, even if working abroad. However, if you're paid in NZ dollars or become an employee of a foreign affiliate, it could complicate matters. For the B&B business, since your wife would be the sole owner and she's a US citizen, that income would need to be reported on US returns too, even if it's a New Zealand business reinvesting all profits.

After struggling with a similar situation when I moved to Japan, I discovered taxr.ai (https://taxr.ai) which literally saved me thousands in potential penalties. The tool analyzes your specific expat situation and shows you exactly what forms you need to file, including those FBAR foreign account forms that many expats don't realize are required. For your specific situation with property in both countries and a potential business, having something that can guide you through the reporting requirements is crucial. I was surprised to learn that even foreign pension accounts have to be reported to the IRS - something my accountant initially missed!

I want to follow up about taxr.ai since I ended up giving it a try after posting my skeptical comment. I'm actually blown away by how comprehensive it is! I've been living in Australia for 3 years and have been paying a CPA specializing in expat taxes around $2,200 annually. The taxr.ai system identified two forms my "expert" CPA had completely missed related to my Australian superannuation account. The system guided me through the entire foreign business reporting structure I would need if I opened a business here, including exactly how to handle the entity classification elections. It even showed me how to properly document using the Australian tax paid as credit against my US tax liability. Definitely worth checking out for your New Zealand move!

If you're moving abroad, you should also be aware that dealing with the IRS becomes MUCH harder! I moved to Germany in 2021 and had some issues with my first expat tax return. I spent literally weeks trying to call the IRS international number with no success. I finally used Claimyr (https://claimyr.com) which got me connected to an IRS agent in about 10 minutes when I'd been trying for weeks. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent was able to fix my FEIE issue and saved me from having to file an amended return. Just something to keep in your back pocket for when you inevitably need to actually speak to someone at the IRS while abroad. It's challenging enough domestically, but the international lines are practically impossible without help.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS about a CP2000 notice I received regarding my foreign accounts. I'd tried calling 12 times over 3 weeks with no success. The service actually worked exactly as described. Their system called me back in about 35 minutes (way faster than I expected for the international line), and I was connected directly to an IRS representative who helped resolve my issue. Saved me at least another week of frustration and potentially missing my response deadline. For anyone dealing with IRS issues while abroad, this is legitimately worth it.

Something nobody's mentioned yet - make sure you research New Zealand's tax treatment of foreign investment income. When I moved to NZ from the US in 2023, I was surprised to learn about their Foreign Investment Fund (FIF) rules. Basically, NZ taxes foreign investments (like your US stocks) differently than local investments. You'll need to pay NZ tax on either 5% of the opening market value of your investments OR the actual gains - whichever method you choose. It can get complicated with the conversion between USD and NZD too.

Don't forget about FATCA and FBAR requirements! When you have financial accounts outside the US exceeding certain thresholds, you need to report them. FBAR (FinCEN Form 114) is required if your foreign accounts exceed $10,000 at any point during the year, and FATCA forms are required at various thresholds depending on your filing status. The penalties for not filing these forms are CRAZY high even if you don't owe any tax. Like, $10,000+ for non-willful violations. Make sure you're tracking all your NZ bank accounts, including any business accounts for that B&B venture.

Just wanted to add another perspective on the business structure aspect. Since your wife would be the owner of the B&B as a NZ citizen, you'll also need to consider whether this creates any issues with US gift tax rules if you're contributing funds to a business you don't legally own. Also, regarding the rental property in the US - even if you're breaking even cashflow-wise, don't forget that you'll be taking depreciation deductions which will reduce your basis. When you eventually sell, you'll have depreciation recapture to deal with, which is taxed as ordinary income up to 25%. This could create a significant tax bill down the road that many people don't anticipate. One more thing to research: NZ has something called the "bright-line test" for property investments, which could affect the tax treatment of your B&B if you sell within a certain timeframe. Since you're planning to reinvest profits initially, this might not be immediate concern, but it's worth understanding for long-term planning. The international tax situation is definitely complex, but with proper planning and the right resources, it's totally manageable. Good luck with the move!