5 Tips for Americans Moving Home From Abroad
If you’ve been living overseas for a while and decide to move back home to the United States, you may find yourself just as overwhelmed as when you were making plans to move abroad. There are many financial considerations, including foreign bank accounts, overseas real estate, taxes and more. The following tips can help you take the financial steps necessary to prepare for your stateside move.
#1 – Make sure you have the necessary documents.
Before you do anything else, take time to locate and organize your personal and financial documents. Having the necessary documents on hand can help streamline your preparations. It’s important to have the following documents readily accessible:
- Birth certificates
- Social Security cards
- Tax returns and other records
- Investment and bank account statements (including workplace retirement plans)
- Driver’s licenses
- Insurance records and cards
- Marriage/divorce certificates
- Medical/vaccination records
- Real estate records
- Employment records
#2 – Decide what to do with foreign investments and pensions.
Work with your international wealth advisor to decide how best to handle foreign investment accounts and pensions. There are several factors that may impact your decision, such as:
- Your plans to return overseas –If you plan to regularly return to your current country of residence, it may make sense to continue holding a balance in foreign bank accounts. Keep in mind, however, that holding foreign assets means you’ll need to continue filing annual tax documents to comply with the Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) requirements.
- Your capital gains tax liabilities –Another reason to consider maintaining foreign accounts is to avoid liquidating all your foreign investments at once, which could result in significant capital gains tax liabilities in your current country of residence. Instead, it may make sense to liquidate your assets gradually over time. Understand how and when your residency status will change in the country you’re moving from. Doing so will help you plan a strategy after knowing how those investments will be taxed now and in the future.
- The strength of the U.S. dollar – If the dollar is currently strong compared to your foreign currency, it may not be a great time to convert your assets. Instead, you may want to consider waiting a few years until the dollar weakens before selling your foreign assets.
- Tax treaties – It’s unlikely you’ll be able to transfer a foreign pension to the United States without paying taxes. So before withdrawing anything from a foreign pension in the United States, make sure there’s a tax treaty in place that allows you to maintain the tax-advantaged status of the account from your current country of residence.
- Your preferences – If the idea of having your accounts spread across multiple countries makes you uncomfortable, it may make sense to move your investments and pensions back to the United States to avoid unnecessary stress.
#3 – Understand how currency fluctuations and a varying cost of living impact your budget.
Depending on how long you’ve lived overseas, you may be surprised to discover that the cost of living stateside has increased significantly since you left. Before moving back, it’s important to fully evaluate your desired lifestyle and establish an appropriate budget.
Start by evaluating how the current exchange rate will impact your available assets once they’re converted back to U.S. dollars. Doing so can give you an idea of how much money you’ll have available once you move back. Then calculate a rough budget that accounts for the current cost of housing, transportation, healthcare, groceries, etc. in your desired U.S. location. Doing so can give you an idea of how your current assets may impact your quality of life once you return home.
#4 – Make arrangements for foreign real estate.
It’s important to start making arrangements for any foreign real estate as soon as you decide to move. If your move involves selling foreign property, it’s important to be aware of the following:
- Some countries require that you gain approval from local authorities prior to selling real estate.
- You’ll likely need to report the real estate sale to the IRS, and any gains may be subject to taxes.
- It’s important to ensure you have a sales contract that’s in compliance with local laws.
- If you had a mortgage on the property, you’ll need to calculate the foreign mortgage exchange gain on your tax return.
- Your current country of residence may have restrictions on moving the proceeds of your real estate sale back to the United States.
If you’re renting your current residence, make sure you understand the specific terms of your lease regarding any required notice periods, the return of a deposit, etc. Give your notice to vacate as soon as possible to avoid paying any penalties or extra rent.
#5 – Understand how moving back home impacts your taxes.
As you’re likely aware, the U.S. tax system is based on citizenship, not residence. That means all U.S. citizens must file an annual tax return regardless of where they live. However, there are some important considerations to keep in mind as you prepare to move back to the United States, such as:
Income reporting –If you return to the United States after working part of the year abroad, you can claim the foreign earned income exclusion (FEIE) or the foreign tax credit (FTC) to exclude the amount you earned overseas from U.S. taxation. If you return to the United States and continue to have foreign income that’s taxed abroad (rental income, bank interest, investment distributions, etc.), you may be able to continue claiming the foreign tax credit. To do so, you’ll need to file IRS Form 1116 to avoid double taxation on this foreign-sourced income.
- FATCA – FATCA requires that Americans living abroad file IRS Form 8938 to report any foreign registered financial assets that exceed $200,000. Once you return to the United States, this threshold is reduced to just $50,000. This means if you continue holding foreign investments once you move back, you may need to continue filing — or perhaps start filing — Form 8938.
- FBAR –If you maintain any foreign financial accounts that held more than $10,000 at any point in the year, you’ll be required to file a Report of Foreign Bank and Financial Accounts (FBAR) with your annual tax return.
- Tax filing deadline – U.S. expats receive an automatic tax filing extension to June 15, which allows them time to file their foreign taxes prior to filing their U.S. return. However, once you return stateside, you’ll again be responsible for filing by the standard deadline (typically April 15).
