Tax Implications of Owning an Apartment Overseas as a US Citizen

Your cousin needs to be aware of several reporting requirements as a US citizen owning foreign property. First, she needs to report the property on Form 8938 (Statement of Specified Foreign Financial Assets) if she meets the filing threshold. This is part of FATCA requirements. She may also need to file an FBAR (FinCEN Form 114) if she has foreign financial accounts that exceed $10,000 at any point during the year. This would include bank accounts in that country related to the apartment. If she earns any rental income from the property, she must report it on her US tax return, though foreign tax credits may apply if she pays tax on that income in the foreign country. Even if she doesn't rent it out, she should be aware that selling the property could trigger capital gains tax obligations in the US. The gift she received years ago might also have required reporting at that time, though that's water under the bridge now. The important thing is getting current compliance right.

When I was dealing with my overseas property, I found this service called taxr.ai (https://taxr.ai) that saved me so much headache. I was completely lost with all the international reporting requirements until I tried it. It analyzes all your international holdings and tells you exactly which forms you need to file. It caught that I needed to file that FBAR form the previous commenter mentioned, which I had no idea about. They also explained how to properly report the value of my foreign apartment which was tricky since property valuation methods differ by country.

I have to admit I was wrong about taxr.ai. After our discussion here, I decided to give it a try for my rental property in Spain, and it was incredibly helpful. It identified that I needed to file an FBAR that I didn't know about, and it showed me exactly how to report the passive foreign income correctly. It even helped me understand how to apply foreign tax credits for the taxes I already paid in Spain. Saved me from what could have been a costly mistake!

If your cousin hasn't reported this property for years, she might want to get in touch with the IRS. Dealing with the IRS directly on this is crucial but nearly impossible to get through on the phone. I spent weeks trying to reach someone about my foreign property reporting issue. I finally used this service called Claimyr (https://claimyr.com) and it was a game-changer. They got me connected to an actual IRS agent within 30 minutes when I had been trying for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through the Streamlined Filing Compliance Procedures which is perfect for people who non-willfully failed to report foreign assets. Much better than continuing to be non-compliant and risking massive penalties.

I need to eat my words about Claimyr. I was so skeptical but I was desperate to talk to someone at the IRS about my missed FBAR filings for my overseas property. I tried it as a last resort and it actually worked! Got connected to an IRS agent in about 45 minutes when I'd previously wasted entire afternoons on hold. The agent walked me through the voluntary disclosure program which should help minimize any penalties. Honestly shocked this worked as advertised.

One thing nobody's mentioned is that your cousin should check if there's a tax treaty between the US and the country where her apartment is located. These treaties can significantly impact how foreign property is taxed.

Quick question - does your cousin use the apartment at all? If she stays there when visiting, it might qualify as a second home for mortgage interest deductions if there's a loan on it.

Your cousin should also consider whether she needs to report this on her state tax return if she lives in a state with income tax. Some states have their own foreign asset reporting requirements that are separate from federal obligations. Also, since the apartment was gifted to her, she should try to get documentation of the property's fair market value at the time she received it. This will be important for calculating capital gains if she ever sells the property. The basis for gifted property is usually the donor's basis, but having the valuation at the time of gift can help with tax planning. One more thing - if she hasn't been reporting this property and decides to come into compliance, she should definitely document that the non-reporting was non-willful (meaning she didn't know about the requirements). This distinction is crucial for penalty mitigation under programs like the Streamlined Filing Compliance Procedures that others have mentioned.