US tax when you own and rent in Italy: FATCA, FBAR and the IRS.

For American owners, buying a property in Italy does not leave the IRS behind. The United States taxes its citizens and green-card holders on worldwide income, which means your Italian rental income, and certain foreign accounts connected to your purchase, can carry US tax and reporting obligations on top of whatever you owe in Italy. Getting this wrong is expensive; understanding it is essential before you rent the place out.

Italian rental income is reportable in the US

If you let your Italian property, that income is taxable in Italy (via the cedolare secca flat tax or ordinary IRPEF) and also reportable on your US return. The US-Italy double-taxation treaty and the foreign tax credit are designed to prevent you being taxed twice on the same income, but you generally still have to report it and claim the relief correctly, it is not automatic.

FBAR and FATCA: the account-reporting traps

• FBAR (FinCEN Form 114): if your foreign financial accounts exceed an aggregate threshold at any point in the year, you must report them. An Italian bank account opened to manage your property can trigger this.
• FATCA (Form 8938): separate reporting of specified foreign financial assets above certain thresholds. Note that foreign real estate held directly is generally not itself a reportable financial asset, but related accounts and entities can be.

Penalties for missed FBAR and FATCA filings are notoriously steep, which is why this catches owners off guard.

Other US angles to plan for

Currency gains on a foreign mortgage, the treatment of a future sale, and estate-tax considerations can all interact with Italian rules in ways that are not intuitive. Italy also levies IVIE, a tax on real estate held abroad by its residents, relevant if you become an Italian tax resident.

Get coordinated advice early

The interaction between Italian and US tax is genuinely complex, and the two systems do not align neatly. The buyers who avoid trouble are those who engage an Italian commercialista and a US cross-border accountant together, before they rent out the property or move, so the structure, the reporting and the treaty relief are all set up correctly from day one.

The reporting calendar American owners should know

Owning and renting in Italy adds US filings on top of your Italian ones. Italian rental income goes on your US return, with treaty relief and foreign tax credits claimed to avoid double taxation. If your foreign financial accounts exceed the aggregate threshold at any point in the year, an FBAR (FinCEN 114) is due; specified foreign assets above the FATCA thresholds require Form 8938. Penalties for missed FBAR and FATCA filings are severe, which is why these catch owners off guard.

Why you need both an Italian and a US adviser

The two systems do not align neatly, on the treatment of rental income, currency gains on a mortgage, a future sale, or estate tax, and Italy's IVIE can apply to foreign real estate held by its residents. The owners who avoid trouble engage an Italian commercialista and a US cross-border CPA together, before renting out or relocating, so the structure, reporting and relief are correct from day one.

Common mistakes for American owners

• Assuming Italian tax ends your US obligations.
• Missing FBAR or FATCA filings on foreign accounts.
• Renting out before setting up cross-border tax advice.

Frequently asked questions

Do Americans pay US tax on Italian property income?

Yes, the IRS taxes worldwide income; the US-Italy treaty and foreign tax credits prevent double taxation if claimed correctly.

What are FBAR and FATCA?

US reporting requirements for foreign financial accounts and assets above certain thresholds, with steep penalties for omissions.

Related reading

• Is Italian property a safe haven for dollar investors?
• Inheritance and your Italian home: what US owners overlook
• Rental yields in Rome, Milan and Florence: what's realistic

Sources & further reading

• Buying property in Italy as an American — Taxes for Expats