US Tax on Foreign Source Investment Income

US Tax on Foreign
Source Investment
Income

BY
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Many investors look outside of the USA for
investment opportunities.

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Our focus in this article is to look at US tax
on foreign source income.


Before looking at specifics of US tax on
foreign source income let us look at
foreign investing.


We are not talking about illegal tax havens
here but rather smart ways to invest your
money and perhaps legally reduce your
tax burden when investing outside of the
USA.


Valid reasons for investing offshore include
the following and many more:


Diversification of an investment portfolio
Taking advantage of growth in evolving
offshore economies


For example a developing nation may wish to
develop a given industry and will provide land at
a low price, extended freedom from local
taxation and other significant benefits to a
specific type of foreign investment


Low cost labor
Proximity to attractive markets


Likelihood of appreciation of the currency
in which the investment will be made
Legal means of reducing a tax burden


Taking advantage of cheap investment
opportunities with the likelihood of
substantial grown


Some time back we wrote about Foreign
Real Estate Investments. In the Panama
section of the article we noted that


one can buy commercial real estate in
growing market like Panama and collect rent
checks as property values go up. Even in
good markets there are business failures.
Buying repossessed properties in a country
like Panama can be lucrative if one has the
services of a local firm that will scout out
investment opportunities.

We also noted that


the rent checks from commercial property
in Bogotá, or Buenos Aires can be banked
in Colombia pesos or Brazilian reals.


Bank the proceeds from your property
offshore, make good interest from the local
bank, and watch your assets,
denominated in a healthy foreign currency,
growth as US debt eats into the value of
the US dollar.

US Tax on Foreign Investment Income


The key part of all this is that income is
taxed when it is realized.


Here are a few key features of current US
tax law regarding US tax on foreign source
income.


What Counts as a Foreign Financial
Asset


Bank accounts, investment accounts and
mutual funds maintained at financial
institutions outside the USA
Stocks, bonds or other securities issued an
entity not of the USA and not an ADR or
other asset held in an US investment
account

Any interest in a foreign corporation,
partnership trust or other legal entity
Any financial instrument or contract
issued by an entity from outside of the
USA

How much do you have to invest or make
in order to worry about US tax on foreign
source income?


This ranges from $50,000 on the last day
of the year or $75,000 on any day of the
year for a single person living in the USA
with assets abroad to $400,000 at the end
of the year or $600,000 at any time of the
year for a married couple living abroad.

As always there are tests to pass in order
to qualify according to IRS rules.


Our point of mentioning realized income is
that real property in an offshore location
does not appear to be in the list of offshore
assets considered taxable by the US
government.


If you would like to consider any of our
Three Good Offshore Investment Ideas,
think of offshore property either to buy and
hold, or for eventual sale and profit or for
rental income.


Think of investing where the currency is
weak and likely to strengthen over time,
making your investment more valuable as
well.


In the end it is not so important to reduce
your tax burden as to find solid
investments.


AND, as always consult a tax attorney
for the details before investing as laws
change as do investment opportunities.


US Tax on Foreign Source Investment Income

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US Tax on Foreign Source Investment Income