Buying Real Estate Overseas For Cash Flow (And A Better Life)

24Take Title

If you purchase a piece of real estate in another country, should you have the ownership documents issued in your name or, perhaps, in the name of a corporation? If a corporation, should it be a local company (formed in the jurisdiction where you're purchasing) or one based somewhere else?

To make the right choice for how to hold the title for a piece of foreign property you intend to purchase, you should consider two things: taxes and your estate.

Understand the tax obligations both in the country where you're buying and also in the United States if you're an American. Likewise, implications for your estate should be considered both locally and back home.

Let's take Panama as an example. The typical way to hold real estate in this country is through a Panamanian corporation. This provides a positive tax effect in Panama whenever you resell, because you're not, in fact, selling the piece of property but the company that owns it. This minimizes the capital gains tax. On the other hand, owning a piece of property in a Panamanian corporation can create a negative U.S. tax effect for an American. Specifically, this can result in the gains being taxed at income rather than at capital-gains rates. You have to weigh the potential liabilities.

Regarding the estate issue, you need to make sure you understand both inheritance laws and estate taxes in the country where you're buying. Here, let's take France as an example. The inheritance laws in this country may surprise ...