5 Key Tax Questions for Buying a Vacation Home Abroad

The allure and prestige of purchasing a vacation home in a foreign land is easy to understand. But there are several tax questions that must be asked to determine if the purchase is a prudent one.

• Will buying a vacation home in a foreign country impact my U.S. income taxes?
  •  As long as a vacation home is purchased in an individual capacity and is not used to produce rental income, it should not trigger U.S. income tax.
• Is the mortgage interest on my foreign vacation home deductible?
  • Yes, interest on up to $750,000 of principal is deductible as long as the debt was used to “acquire, construct or substantially improve” a primary residence or one secondary home. After 2025, the principal amount jumps up to $1 million.
• If I incur foreign real estate taxes, are they deductible?
  • As of right now no, but starting 2026, the itemized deduction for foreign real estate taxes is scheduled to return.
• I have a U.S. will and testament. Will it sufficiently address the eventual transfer of my foreign home to family or friends?
  • Different countries can have very different estate planning laws, so it is best to work with a tax attorney and an advisor to possibly create a foreign estate plan.
• Do I risk exposure to double taxation from a wealth transfer perspective?
  • The U.S. estate and gift tax calculation includes the value of all your assets, including real estate abroad. If those foreign countries also impose a gift or estate tax, there may very well be double taxation.

See 5 Key Tax Questions for Buying a Vacation Home Abroad, Northern Trust, June 13, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.