- This topic has 1 reply, 6 voices, and was last updated 17 years, 1 month ago by
.
-
Posts
-
I live in the US and am planning on buying a property in Costa Rica. I understand my tax obligations for that property in Costa Rica, but was wondering if someone could provide a quick rundown of my US tax responsibilities on the property in Costa Rica during ownership and at sale. Obviously I understand that I have to seek my own counsel and that nothing on here can be construed as tax advice to rely on, but I thought other people could share their experiences so I have a better idea of what I am getting into.
Ask five people that work at the IRS the same question and get five different answers – your tax dollars working efficiently eh? 🙂
Ask that question in a Discussion Forum devoted to living in Costa Rica and get ???
At present JoeMusc there are no capital gains taxes applicable on the sale of your property in Costa Rica to the Costa Rican tax authorities.
Having said that, although I do have a good idea of what you are liable for in the USA, I can not tell you with 100% certainty so would prefer to leave that part to some others …
Scott Oliver – Founder
WeLoveCostaRica.comOne thing to keep in mind is that the U.S. (the individual states and many other countries) consider you a citizen and ALL your financial affairs no matter where in the world those financial dealing occur. If you are libel for U.S. taxes then it does not matter where the profit or loss occurred. If you paid taxes on certain transactions elsewhere then the IRS takes that into consideration.
There ARE sizable tax exemptions if you move out of the U.S. and live abroad full time (330 full days a year).
Unless you give up your US citizenship the IRS considers everything in your tax related financial life, no matter where in the world, their business. For corporations this is easy, but for individuals you have to become and prove you are a citizen of somewhere else.
Edited on Oct 30, 2007 14:29
“If the Internal Revenue Service suspects you are renouncing your citizenship to avoid taxes, it will try to tax your holdings for another ten years, no matter where you live. All the IRS need establish is that it is reasonable to believe you gave up citizenship to avoid taxes. Then, the burden of proving the move was not for tax reasons falls on the former citizen.”
I fully expect that within the next 5-10 years (probably sooner if GWB is insane enough to attack Iran – and there’s plenty of evidence to doubt his sanity) that US citizens will be required to “apply” to leave the USA and retire in other countries “for security reasons.”
Scott Oliver – Founder
WeLoveCostaRica.comPS. There are sizeable income exemptions for US citizens when they are legal residents living outside of the US for the required amount of time but – and this needs to be confirmed – I don’t believe that there are any capital gains exemptions…
Thank you Scott and guru. Scott, this website and your book is by far the best source of information on Costa Rica that is out there.
So I guess that this means that buying and selling real estate through an S.A. or some variation thereof does not help. I have been told (by dubious sources) that since an offshore corporation is domiciled outside of the U.S., it does not have an obligation to pay taxes upon the sale of its Shares, as an individual owner would. Is there any truth to this?
From some research elsewhere (on the internet), I have learned that you are obligated to file a Form 5471 with the IRS for every year that you own a foreign corporation (basically just indicates ownership) or else be subject to a 10,000 dollar penalty. I have read that if you have failed to do so, you may be able to avoid the penalty by filing and explaining the “reasonable cause” for not doing so in the past.
In any event, I would be hesitant to not report capital gains to the IRS because when you receive funds from sale (over 10,000) and the proceeds of the sale are transferred to your US bank account, the banks are required under U.S. Bank Secrecy Laws to report that transaction to the IRS. A large deposit might send a red flag to the IRS to take a closer look. Also, if you attempt to use your corporation for fraudulent purposes, you are asking for big trouble, which begs the question of whether using the corporation to not pay capital gains is a fraudulent purpose.
If you attempt to have the proceeds from sale deposited in a Costa Rican Bank, you still might have problems because Costa Rica’s Bank Secrecy laws are not foolproof and Costa Rica has been far more cooperative with the US since 9/11.
This is still all a little confusing to me, because as you mentioned, everyone you ask has a different take on these issues. Please let me know if any of the information above is in need of clarification.
I am but a humble servant of the U.S. tax system, desperately trying to comply with its demands, so that Premier Bush and Halliburton can fund its bloody wars and politics of fear.
David Kay Johnson, the financial editor for the New York Times, wrote a book titled “Perfectly Legal” about 2002. It’s about how the IRS Code has been manipulated by big money interests to permit them to avoid paying income taxes — perfectly legally.
I’ve since lost the book, but I recall Johnson writing that while individuals and corporations are required to report capital gains (or maybe it’s distributions), partnerships are not. The capital gains of a partnerdship are taxable, all right, but the partners in the partnership, not the partnership itself, are liable for the reporting. So people form partnerships of various types, invest and enjoy capital gains, then liquidate the assets and distribute those gains to the individual partners. Since there’s no record of the distributions by the partnership, there’s no trail back to the partners and – voila! – no reported income (and thus no tax payment).
Scott, I hope you are joking about US citizens requiring permission to retire outside the US. I dont think that is going to happen in my life time.
I like to think I have a good sense of humor but I do not find politics remotely amusing and I am deadly serious about what I said and if you use a little imagination you will see that measures are already being put in place to make this happen…
You might wish to take a look at where it states that:
“The proposed new rules, which are currently open for public comments, would require that:
1. All would-be international travellers to or from the USA (even US citizens crossing the U.S.-Canada border on foot) would have to have government-issued ID credentials
2. All would-be passengers on international or domestic flights to, from, over, via, or within the U.S. would have to have both government-issued ID credentials and explicit case-by-case prior permission from the DHS to the airline to allow each passenger to board a plane.
The proposed rules would enforce the requirements for papers and permits through default provisions that would:
1. Require all air travellers to show their papers (”government-issued photo ID”) to airline staff on request of the DHS, under penalty of denial of transportation.
2. Forbid any airline from issuing a boarding pass to anyone, or allowing them to board a plane, unless and until the airline received individual permission (a “cleared message”) authorizing that airline to allow that specific person on that specific flight.”
Scott Oliver – Founder
WeLoveCostaRica.comFrom what I have been told, the part about everyone being cleared by Homeland Security for every flight leaving the US is in place already. I think it was in January or June. The Canadian border crossing passport requirement was put on hold…For now.
About the gov’t national ID. Here in NYS the Governor just announced his plan the other day for illegal immigrant drivers licenses, and the rest of us plain citizens get the enchanced version, which will comply with federal regulations, and act like a passport when crossing into Canada. It will take about a year to enact. Anyone else see this? It was not on the front pages of the newspapers. It was on page 3 in mine. I guess it wasn’t all that important for NYS residents to be advised.
The ACLU is up in arms over this. One of the only times I’ve actually agreed with them.
The coffee’s in the pot, time to smell it.
- You must be logged in to reply to this topic.
