Tax Advantages for Expats Living in Costa Rica

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Tax Advantages for Expats Living in Costa Rica
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Tax Advantages for Expats Living in Costa Rica
Living in Costa Rica is sunshine and sandy
beaches, rainbows and afternoon naps in the
hammock. Its a lot of exactly what you think
(and hope) itll be. Its also tax benefits for
U.S. taxpayers. Huge benefits. Benefits to the
tune of 200,000 in reduced tax liability.  And
that buys a lot of paradise.
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The Foreign Earned Income Exclusion
If you live and work (or own a business) in Costa
Rica, you may qualify for the U.S. Foreign Earned
Income Exclusion (FEIE), which allows you to earn
an established amount tax-free as of 2017,
102,100 for single payers, or 204,200 if your
U.S. spouse lives abroad, too. To qualify, youll
need to file your standard tax return, plus Form
2555. Note that the FEIE applies only to earned
income in other words, a salary, wages,
self-employment income, etc.  and not passive
income, to include capital gains, interest,
dividends, etc. To qualify for FEIE, you must
also meet one of the two following requirements

• You are a legal resident of Costa Rica for an
  uninterrupted period. This uninterrupted period
  must include an entire tax year, typically a full
  calendar year. This can be difficult to meet your
  first year abroad, which brings us to
• You have been physically present in Costa Rica
  for 330 days of a 12-month period, not limited to
  a tax or calendar year. Short-term travel to the
  U.S. must be subtracted from your time abroad.

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Foreign Tax Credit Speaking of income taxes, the
Foreign Tax Credit (FTC) offers a
dollar-to-dollar credit against your U.S. income
tax liability, for any income taxes you pay to
Costa Rica. Note that the FTC does not combine
with the Foreign Earned Income Exclusion in
other words, you cannot take the Foreign Tax
Credit for tax benefits under the FEIE (or other
tax breaks). Foreign Housing Exclusion/Deduction
Heres one for U.S. employees residing abroad
the Foreign Housing Exclusion/Deduction, which
allows you to exclude or deduct certain earned
income, as well as specific qualifying expenses
rent, insurance, utilities, etc. Heres how it
works The IRS establishes a base housing
amount at 30 of the FEIE. As of 2017, this
amount would be 30,630 from this, you must
deduct the IRS-established base housing amount,
calculated at 16 of FEIE, or 16,336 for 2017.
With these numbers, your total foreign housing
cost amount boils down to 14,294. This is the
income you may exclude or deduct, if you qualify
for the Foreign Housing Exclusion.  Other Tax
Credits In addition to foreign-only tax benefits,
youre also eligible for credits you have enjoyed
back home, including the child tax credit, the
American opportunity tax credit, and other
standard credits. Speak with your tax
professional for more details. 
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Financial Privacy The benefits of living abroad
dont stop at the IRS. Did you know that your
foreign-held real estate grants you a certain
amount of legal financial privacy? Whereas
foreign bank accounts must be disclosed, real
estate held abroad still grants you a certain
amount of privacy. Foreign real estate held
directly in your name does not have to be
reported to the IRS. And that means, real estate
can be a way to partially diversify your savings
while maintaining a smidgen of privacy. Tax
Deductions Deferrals When you own property in
Costa Rica, you should know that certain
property-related expenses  yes, even qualifying
travel to Costa Rica, to make improvements or
repairs to your home may be tax
deductible. Whats more, if you purchased your
home abroad through your IRA, any income you earn
for example, income from a short-term vacation
rental must be reinvested back into your IRA.
The upside your IRA income is tax
deferred. These are just six of the most common
ways living abroad and owning Costa Rican real
estate can provide real, quantifiable tax
benefits. Speak with an experienced expat tax
lawyer for more information on how to minimize
your U.S. tax liability while residing abroad.
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