Year-End Tax Planning When You Have Assets Outside the U.S.
Every fall I get some version of the same email: "Is there anything I should do before the end of the year?" For a client whose financial life is entirely in the U.S., the answer is usually short. For a client with a bank account in Mexico, a pension in London, a fund held through a Canadian broker, or parents who send money from abroad, the answer is longer. And most of it has December 31 attached to it.
The reason is simple. The U.S. taxes its citizens and green card holders on income from anywhere in the world. And many of the international rules look at the calendar year: the highest balance in an account during the year, the total gifts you received during the year, what a fund was worth on December 31. Once the year ends, those numbers are locked in, and I can only report what happened instead of helping you plan for it.
Below is what I am walking my individual clients through this year. Not all of it will apply to you. If something does, please reach out by December 1 so we have time to actually do something about it.
Paying tax in another country? Timing matters
If you pay income tax to another country, the U.S. usually gives you a credit for it so you aren't taxed twice on the same income. The catch is timing. For most people, the credit counts in the year the foreign tax actually leaves your bank account.
That gets tricky when the other country's tax year doesn't match ours. The UK's tax year ends April 5. Australia's ends June 30. So a payment you make in January can be for a tax year that started well over a year earlier.
What I look at with clients in the fall:
A foreign tax payment coming due in January. If you also have foreign income this year, paying in December instead of January can let you use the credit on your 2026 return. If you don't have foreign income this year, paying early won't help.
Changing how you count the credit. You can choose to count foreign tax in the year it's owed instead of the year it's paid. Sometimes that lines things up better. But once you switch, you can't switch back. I don't recommend it casually.
Leftover credits. Credits you couldn't use can generally go back one year or forward up to ten years. If you have some, let's see whether anything this year can use them before they expire.
A foreign refund or a new bill. If the other country refunded tax or sent you an extra bill, your U.S. return may need to be adjusted. Please tell me.
Foreign currency mortgages: the income nobody sees coming
If you have a mortgage in a foreign currency, paying it down can create taxable income on your U.S. return, even though you never sold anything.
Here's a simple example. You borrowed €200,000 when one euro cost $1.20, so in dollars the loan was $240,000. Today a euro costs $1.10. Paying back that same €200,000 now costs you only $220,000. The IRS sees the $20,000 difference as income. It's figured on each payment of principal, not just when you pay the loan off.
If the property is your home, the rule is one-sided. A gain is taxable, but a loss doesn't count. A federal appeals court, the one that covers us here in New England, upheld this in Quijano v. United States.
What this means before December 31:
Refinancing, paying off, or selling? Let's run the numbers first. Sometimes waiting until January is better.
Changing foreign cash into dollars? For personal money, a gain of $200 or less on an exchange isn't taxed. Above that, it is. This rarely matters for travel money, but it can when you convert a large balance you've held for years.
Foreign mutual funds and ETFs: talk to me before you buy
If you own a mutual fund or ETF set up outside the U.S., the IRS most likely treats it as a "PFIC" (passive foreign investment company). These are common in foreign bank and brokerage accounts, savings plans, and some pensions. The fund may be perfectly normal at home. Here, it's taxed harshly.
Under the default rules, when you sell at a gain, the IRS spreads that gain over every year you owned the fund, taxes each slice at the highest tax rate, and then adds interest. You don't get the lower capital gains rate. After many years, that can eat a big share of your profit.
There are two choices that soften this. Both work best if you make them in the first year you own the fund:
Pay as you go. If the fund trades on a recognized stock exchange, you can report each year's increase in value as income. It's based on the fund's value on December 31.
Report your share of the fund's earnings each year. This can keep the lower capital gains rate when you sell, but only if the fund sends a special annual statement for U.S. investors. Many don't. If you bought a fund this year, ask for it now.
Both choices are made on Form 8621 with your tax return.
A few things to think about right now:
Thinking about selling? Selling doesn't get you out of these rules. It's what triggers them. Let's estimate the tax before you sell, especially if you've owned the fund for years.
Small amounts. If all your foreign funds together are worth $25,000 or less on December 31 ($50,000 if married filing jointly), and you didn't sell, get a payout, or make one of the choices above, you may not have to file Form 8621. Please check with me before assuming that.
Buying something new in December? Call me first. There's often a U.S. fund with nearly the same investments and none of this hassle.
Property abroad: renting it out or selling it
Renting out property overseas? That rent goes on your U.S. return. You can deduct wear and tear on the building (depreciation), but for a foreign rental home first rented after 2017, it's spread over 30 years instead of the 27.5 years used for a U.S. rental. If you started renting a place this year, tell me the month. It changes this year's deduction.
Please also send me what you paid in foreign tax on that rent, so we can use it as a credit.
Selling a home abroad? The U.S. lets you leave out up to $250,000 of profit ($500,000 for most married couples filing jointly) when you sell the home you live in, and that works for homes outside the U.S. too. You must have owned it and lived in it for at least two of the last five years. Before you sign, keep three things in mind:
Your profit is figured in U.S. dollars. We convert what you paid using the exchange rate when you bought, and the sale price using the rate when you sell. You can have a U.S. profit on a house that lost value in local money, or the reverse.
The mortgage is a separate calculation. See the currency section above. Paying off a foreign mortgage at closing can create taxable income even when the profit on the house itself is tax-free.
The closing date decides the tax year. If you're a few weeks short of two years, or you'd rather have the sale count in 2027, the calendar is worth a conversation.
Gifts: money coming in from family abroad, and money going out
If family overseas sends you money, you don't pay U.S. income tax on a gift. But you may have to tell the IRS about it, and the penalty for forgetting can be up to 25% of the gift. That's the part people don't expect.
For 2026, you have to report gifts on Form 3520 if:
You received more than $100,000 in total during the year from a person who isn't a U.S. citizen or resident (or from a foreign estate). Gifts from relatives of that person are added together. So $60,000 from your mother and $50,000 from your father counts as $110,000.
You received more than $20,573 from a foreign company or partnership. The IRS looks hard at these, because a "gift" from a company can really be pay or a dividend.
One good exception: if your parents pay a school or a hospital directly for you or your kids, that isn't counted as a foreign gift.
Before December 31, add up what you've received this year. If you're close to $100,000, or a big transfer is planned, let me know so we're ready to file. The form is due with your tax return.
If you're the one giving, two numbers matter for 2026:
You can give up to $19,000 to any one person this year without filing a gift tax return.
If your spouse is not a U.S. citizen, you can't give them unlimited amounts tax-free the way citizen spouses can. The limit for 2026 is $194,000. Above that, you'll need to file a gift tax return.
These limits reset every January 1. Anything you don't use this year is gone, so if you were planning a gift, December is the time.
Own part of a company overseas? 2026 is a new set of rules
This one applies if you own 10% or more of a foreign company, and U.S. owners together control it. Think of a small business you run abroad, or a family company back home.
Here's the part that surprises people: the U.S. can tax you on your share of that company's profits every year, even if you never take a penny out. That has been true since 2018. What changed is the math. Starting with 2026, the law was rewritten and the rule got a new name, "net CFC tested income." For many small business owners, the result is that more of the company's profit is pulled onto your U.S. return than before.
There is a choice available to individual owners, called a section 962 election. In plain terms, it lets you be taxed on that income more like a U.S. corporation would be, with credit for the foreign tax the company already paid. It often lowers the bill, but not always. It can also create a second layer of tax later, when the company actually pays you. It has to be run both ways.
What I need from you before year-end:
The company's profit for the year so far, and what it paid in local tax.
Whether you plan to take a dividend or salary from the company before December 31.
The company's year-end date, if it isn't December 31.
If you own a foreign company and we haven't talked about it yet, please call me this year, not in April.
Reporting your foreign accounts: two forms, two different tests
These forms don't usually create tax. They're about telling the government what you have. But the penalties for missing them are serious, so this is the one area where I'd rather you over-share.
The FBAR (FinCEN Form 114). You have to file it if all your foreign accounts added together were worth more than $10,000 at any point during the year. Not each account. All of them together, on their highest day. A savings account with $6,000 and a checking account that briefly hit $5,000 is enough. It's due April 15, with an automatic extension to October 15.
Form 8938. This one goes with your tax return and has higher limits:
If you live in the U.S. and you are... | You file if your foreign assets were worth more than... |
Single | $50,000 on Dec. 31, or $75,000 at any time during the year |
Married filing jointly | $100,000 on Dec. 31, or $150,000 at any time during the year |
If you live abroad, the limits are higher: $200,000 / $300,000 if single and $400,000 / $600,000 if married filing jointly.
What to do before December 31: start a simple list of every foreign account you own or can sign on, including accounts for a parent or a business. Note the highest balance for each this year. When the year-end statements arrive in January, send them to me. Having that list ready is the single most useful thing you can do.
Your year-end checklist
If any of these apply to you, send me a note by December 1 so we have time to act before the year closes:
You paid, or will owe, income tax to another country this year.
You have a mortgage or loan in a foreign currency, or plan to pay one off, refinance, or sell the property.
You own a mutual fund or ETF through a foreign bank or broker, or plan to buy or sell one.
You started renting out, or are selling, property outside the U.S.
Family abroad sent you money this year, or you plan a large gift to someone (including a spouse who isn't a U.S. citizen).
You own 10% or more of a company outside the U.S.
You have, or can sign on, any account outside the U.S.
None of this is meant to scare you. Most of it is simply about timing and paperwork. The clients who have the easiest tax season are the ones who call me in December, not April.
Want to go over your situation before the year closes? Reach out and let's talk.
This article is general information, not advice for your situation. Tax rules change, and the right answer depends on your facts. Please reach out before acting on anything here.
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