Buying a Second Home Abroad

Between October 2023 and April 2025, the four cheapest legal routes from an American passport to a European residence permit closed. Portugal’s Law 56/2023, the Mais Habitação housing package, removed real estate from its golden visa menu in October 2023 — a route that had carried roughly three-quarters of all applicants since 2012. Greece replaced its flat €250,000 threshold on September 1, 2024 with a three-tier map under Law 5100/2024: €800,000 in Attica, greater Thessaloniki, Mykonos, Santorini and islands of more than 3,100 people, €400,000 elsewhere, €250,000 only for conversions and listed-building restorations. Spain abolished its investor visa outright on April 3, 2025. And on April 29, 2025 the European Court of Justice held that Malta’s “citizenship by naturalisation for exceptional services by direct investment” — up to €750,000 and a nominal year of presence — was contrary to EU law, because a member state may not commercialise Union citizenship.

Nothing happened to the buildings. What vanished was a policy premium that had been priced into them, and the buyers who had underwritten a purchase on the permit rather than on the property discovered that they had bought the property.

That is the frame. A second home abroad is bought for use, and it should be underwritten as a consumption asset with a large, mostly fixed carrying cost, priced in a currency you do not earn. What follows is the 2026 rules country by country, the true cost of buying and holding as a foreigner, the American tax that crosses the border with the asset, and a €500,000 apartment run through ten years with every fee and both tax systems shown.

Ownership abroad is a question of legal system before it is a question of price, and the answer decides how fast you can transact, what your title is worth, and whether you may hold the thing at all.

Most markets an American buyer wants — Portugal, Spain, Italy, France, Greece, Mexico — are civil-law countries where a notary is a public official rather than a rubber stamp. The notary drafts and authenticates the deed, verifies identity and capacity, checks the register, collects the transfer tax for the state and lodges the registration. There is no title insurance industry, because the notary and the register do that job, and no attorney-supervised escrow closing. The commonest source of surprise follows: the notary acts for the transaction, not for you. You need your own lawyer, and in Portugal, Spain and Italy that is a separate 1% or so of price, not an optional extra.

Three ownership forms recur. Freehold — full title in your own name — is available to non-residents in Portugal, Spain, Italy, France, Greece and most of the Caribbean, and in Dubai only inside designated freehold areas. Beneficial ownership through a trust is what Mexico requires inside its restricted zone: Article 27 of the 1917 Constitution bars foreign nationals from directly owning land within 50 kilometres of the coast or 100 kilometres of an international border, so a foreign buyer in Los Cabos, Tulum or Puerto Vallarta holds through a fideicomiso, a Mexican bank trust in which the bank holds legal title as trustee and you hold every beneficial and economic right for a renewable 50-year term. Setup runs about $2,000–$3,000, with a $500–$1,000 annual trustee fee.

Leasehold or concession is what you get where the state will not sell: Costa Rica’s maritime zone is the standard example. Under Law 6043 of March 2, 1977 the first 200 metres inland from the ordinary high-tide line is state land: the first 50 metres is public zone in which nobody, Costa Rican or foreign, may build or acquire any right, and the next 150 metres is the restricted zone, granted only by municipal concession. A foreigner may hold no more than 49% of a concession, and no concession is granted to a foreigner who has not resided in Costa Rica for five continuous years.

Price discovery is thin and asking-price-led: few comparable sales, listings that sit for months, and published “average price per square metre” series usually built from asking prices rather than registered deeds. Treat every quoted index as a sentiment measure until you can see the register.

The consequence is visible the moment you try to price a market. Below are the best-dated readings available in September 2026 for the six second-home markets Americans ask about most. Read them as orders of magnitude, not as valuations: the European figures are portal medians or asking prices, the Costa Rican number comes from brokers because the country publishes no repeat-sales index at all, and the Bahamian one is a single brokerage’s quarterly summary of its own listing data.

The spread inside each of those averages is wider than the average itself, and it is where a second-home buyer actually transacts. Prime Algarve resort addresses cleared far above the regional line in the second quarter of 2026 — Castro Marim at €12,626 per square metre and Loulé at €10,804 on idealista’s index of coastal listings above €1 million — while inland and eastern Algarve sat at €2,000–€3,000. Málaga province averaged €3,842 per square metre in Tinsa’s Q3 2025 asking-price series, up 15.3% on the year, with Marbella between €5,500 and €6,000. Tuscan provinces ranged from about €1,442 per square metre in Arezzo to €3,302 in Lucca in June 2026, with the city of Florence above €4,600. And New Providence’s $600,000 median sits under an average sale price of $1,408,577, which is what a market with a long luxury tail looks like in a table. None of these is a constant-quality index, and none should be used to underwrite a purchase without registered comparables for the specific building.

Long-run performance here is worse than any brochure suggests, for three structural reasons no index corrects: the published series measure local-currency prices, they exclude the 5–15% cost of entry and 6–8% cost of exit, and they exclude a carry of 2–4% of value every year whether or not the market moves.

Start with the best-constructed number available. Knight Frank’s Prime International Residential Index, in its twentieth year and covering 100 luxury markets including the coastal and alpine second-home hotspots, recorded global prime prices rising 3.2% in 2025, marginally below 3.6% in 2024; 73 of the 100 markets rose and 24 fell. The Middle East led at +9.4%, Latin America and the Caribbean at +4.7%, Asia-Pacific at +3.6%, Europe at +3.3%, and North America was the only region in negative territory at −0.9%, dragged by Vancouver and Toronto, with Miami slightly down and Los Angeles cooled by Measure ULA. Two markets did the heavy lifting: Tokyo at +58.5% and Dubai at +25.1%.

A single strong year is not a record. The full cycle is, and Spain supplies the cleanest one. On the national statistics office (INE) series, Spanish house prices fell 37.2% in nominal terms and 44.3% in real terms between 2007 and 2014. The regional spread inside that number is what a second-home buyer must internalise: Catalonia fell 47%, Madrid 43%, and Andalusia — the Costa del Sol, the most foreigner-dependent market in the country — fell least at 30%, because it had inflated least in a boom driven by domestic credit. Recovery took a decade and a half: the registrars’ repeat-sales index (IPVVR) stood 39.31% above its 2007 quarterly peak in Q2 2026, meaning a buyer at the 2007 top waited roughly fifteen years to recover in nominal euros and longer in real ones.

Now the benchmark that matters to a dollar investor, which is not the Spanish index but the American house you did not buy. On our own tape, the Invest Alternative Luxury Real Estate sub-index — built on Zillow’s top-tier ZHVI, carrying a 10.2% weight in our composite — stood at 101.043 on September 8, 2026, up 1.04% over one year and flat over 30 days. The underlying Zillow series, which we hold from January 2000, ran from $247,612 to $715,426 in July 2026: a nominal 4.09% a year over twenty-six and a half years. Our Parcl Labs national price-per-square-foot feed, stored daily since June 30, 2026, fell from $463.57 to $453.12 by September 7, 2026. These are our series, on our collection and method; the sub-index is provisional, none is a market-wide figure, and none is specific to overseas property.

Put the three together and the arithmetic is plain. A European prime market compounding at 3.3%, a US top-tier series compounding at 4.09%, entry at 5–15%, exit at 6–8%, carry at 2–4% a year. On any reasonable hold, carry alone consumes the whole of the appreciation. The return on a second home abroad is the use of it. The domestic half of that comparison — what American prime property has returned, and what it costs to hold — is the subject of Investing in Luxury Real Estate, the hub’s flagship, and the letting rules a foreign apartment runs into are the subject of Investing in Short-Term Rentals; Investing in Real Estate Syndications and Private REITs and Investing in Net-Lease Commercial Property are the same hub’s pooled and income routes, and Investing in Opportunity Zones is the American programme that does at home what no country here offers a foreigner.

The first diligence question is not what a property costs but whether a foreigner may hold it, and since 2022 the number of rich-country markets answering no has grown. Housing affordability became an electoral issue across the Anglosphere at once, and the foreign buyer is the cheapest available policy target.

The outright bans

Canada prohibited most non-Canadians from buying residential property under the Prohibition on the Purchase of Residential Property by Non-Canadians Act, effective January 1, 2023 for two years and extended in February 2024 to January 1, 2027. Certain work-permit holders, qualifying students and refugee claimants are excepted, and the Act reaches only buildings of three dwelling units or fewer inside a census metropolitan area (100,000 people, 50,000 in the core) or a census agglomeration (10,000 people), so recreational property outside both is carved out — which is why the ban has not stopped Americans buying rural Ontario cottages but has stopped them buying Toronto condominiums.

Australia banned foreign persons from acquiring established dwellings from April 1, 2025, initially to March 31, 2027, and in the 2026–27 Budget extended it by a further two years and three months, to June 30, 2029. New Zealand citizens are exempt; new dwellings and vacant land remain open with Foreign Investment Review Board approval and the state surcharges that go with it.

New Zealand ran the other way. Its 2018 Overseas Investment Amendment Act banned most non-resident foreigners from buying existing homes; 2025 legislation reopened the door for holders of its investor golden visa, who from early 2026 may buy or build one home at a minimum of NZ$5 million. It is the only reversal in this list, and it is priced to be irrelevant to almost everyone.

The structural restrictions

Mexico bars direct foreign title inside the restricted zone, which is where every coastal second home is; the fideicomiso is the routine workaround. Switzerland’s Lex Koller confines non-resident buyers to holiday homes in designated tourist zones under a national quota of roughly 1,500 cantonal permits a year, each capped at about 200 square metres of net living space; a federal reform tightening the quota and the resale rules was in consultation through 2026. Thailand prohibits foreign land ownership outright and, under the Condominium Act of 1979, caps foreign ownership at 49% of a building’s saleable floor area — a draft raising it to 75% stalled in committee — leaving a registered 30-year lease as the alternative. Indonesia reserves freehold (hak milik) to Indonesian citizens outright, so a foreign individual holds a right of use (hak pakai) or a lease and never a freehold. Each needs local counsel.

The pattern is what a buyer should price. A restriction on foreigners is a political instrument, enacted quickly, extended by default and rarely repealed. It rarely takes value from an existing owner — every regime above grandfathers completed purchases — but it removes a slice of the demand that would have bought your house from you, and that shows up as time on market rather than as a price cut.

A residency-by-investment programme is a government selling a permit, and the price and the terms move whenever the housing politics move. Between 2023 and 2025 the European market for these permits was repriced in one direction, and the property route was the specific casualty.

Portugal

Law 56/2023 (Mais Habitação) entered force in October 2023 and removed real estate — the route that had carried roughly 75% of all applicants since 2012 — from the eligible list, along with funds holding real-estate exposure. What survives, and now dominates, is a €500,000 subscription into a Portuguese-law collective investment undertaking with at least five years to maturity and 60% of its capital in commercial companies based in Portugal. The programme is alive in 2026 — the fund route asks about seven days of presence a year — but the property route is not, and the prize behind it has been repriced too: a new nationality law approved by Parliament on April 1, 2026 and signed by the President on May 3, 2026 extends the general citizenship-eligibility period from five years to ten (seven for EU and CPLP nationals). Residency rights are unaffected; the passport now takes twice as long.

Separately, the non-habitual resident (NHR) tax regime closed to new entrants on December 31, 2023 and was replaced by IFICI, in force from December 24, 2024 with retroactive effect to January 1, 2024: a 20% flat rate on qualifying employment and self-employment income for ten years, restricted to scientific research, higher education, technology and recognised business development. The change that matters most to a retiring American is that foreign pension income, taxed at a flat 10% under the old NHR, is fully taxable under IFICI.

Greece

Law 5100/2024, Article 64, replaced the flat €250,000 threshold from September 1, 2024 with three tiers: €800,000 in Attica, the Thessaloniki area, Mykonos, Thira and islands of more than 3,100 inhabitants; €400,000 everywhere else; €250,000 for converting a commercial building to residential use or restoring a listed building, works completed before filing. The two property tiers require a single residential unit of at least 120 square metres on the title deed, and short-term letting of a golden-visa home is prohibited. Greece is the one European programme still selling residency for property, and it has removed the rental income that would have paid for it.

Spain and Malta

Spain abolished its investor visa by Organic Law 1/2025 with effect from April 3, 2025, after a decade in which €500,000 of property bought residence, citing housing affordability in Madrid and Barcelona; applications filed earlier keep their renewal rights under transitional provisions. Malta’s citizenship-by-investment programme was held contrary to EU law by the European Court of Justice on April 29, 2025, on the ground that granting nationality in direct exchange for predetermined payments manifestly infringes EU values and breaches the principle of sincere cooperation. The scheme was then repealed outright by Act XXI of 2025, which came into force on July 24, 2025 and struck the citizenship-by-investment provisions and their licensed agents from Maltese law. Malta retains the Permanent Residence Programme; it no longer has a legal route to an EU passport by payment.

Italy and the UAE

Italy’s investor visa remains open on four tiers: €250,000 into an innovative start-up, €500,000 into an Italian limited company, €1 million in philanthropy and €2 million in government bonds, for a two-year permit renewable in three-year blocks with no minimum-stay requirement. Property does not qualify; Italy sells a tax cap instead, and the cap has been raised twice since 2024. The Article 24-bis flat tax on all foreign-source income went from €100,000 to €200,000 for residence transferred after August 10, 2024, and then to €300,000 a year from January 1, 2026 under Article 1 of the 2026 Budget Law, published in the Gazzetta Ufficiale on December 30, 2025, with the family-member surcharge doubling from €25,000 to €50,000. It runs up to fifteen years, is open to someone not resident in Italy for nine of the previous ten, and existing electors are grandfathered at their original figure for the rest of their term. Italy also runs a 7% flat rate on all foreign-source income for ten years for foreign pensioners who move to a southern municipality — Law 34/2026 of March 11, in force April 7, 2026, raised the population ceiling from 20,000 to 30,000 and added roughly 74 towns, Ostuni, Noto and Pompei among them.

The UAE got cheaper rather than dearer. A ten-year renewable golden visa requires property certified by the Dubai Land Department at AED 2 million, about $545,000 at the dirham’s dollar peg, and since February 2026 the previous 50%-paid requirement is gone: mortgaged and off-plan units qualify on certified value with a bank no-objection letter, and multiple properties aggregate. That is the loosest this programme has ever been.

The Caribbean

Five Eastern Caribbean states sell citizenship outright, and under a 2024 Memorandum of Agreement among St Kitts and Nevis, St Lucia, Antigua and Barbuda, Grenada and Dominica every programme has been bound since July 1, 2024 to a minimum of US$200,000. Only Dominica sits at the floor. Each also offers a real-estate route at a higher figure, typically an approved resort development with a mandated holding period — a fund investment wearing a building, whose resale market is limited to the next citizenship applicant.

Round-trip friction decides whether this asset can ever be an investment, and in every market an American is likely to consider it is three to ten times the US equivalent. A US buyer’s own closing costs typically run 1–2% of price; abroad the state takes most of it at the deed, in cash, before you have the keys.

Portugal

Transfer tax (IMT) on a second home runs a progressive table topping near 7.5%, then flat 6% above €1,102,920, for residents; non-residents pay a flat 7.5% of price regardless of value, a rule brought in by the Construir Portugal package that Parliament approved in February 2026 and that has been in force since May 25, 2026. Add stamp duty at 0.8% of the higher of price or tax-register value (VPT), notary and registration of €1,000–€1,500, and legal fees of 1–2%; agency commission, commonly 5% plus VAT, is paid by the seller. Buyer-side total: about 9–10%.

Italy

Registration tax on a second home from a private seller is 9% — but of the cadastral value rather than the price, under the prezzo-valore election, and cadastral values typically sit 30–60% below market. On a €1.6 million Chianti farmhouse with a €900,000 cadastral value that is about €81,000 rather than €144,000. Add cadastral and mortgage taxes of €50 each, notary at 1–2.5%, legal fees, and agency of 2–3% plus VAT, which in Italy the buyer customarily shares. Buyer-side total: 9–15%, the widest range in Europe.

Spain

Transfer tax (ITP) on a resale is set by each autonomous community: Andalusia’s general rate is 7% (6% for a home at or below €150,000), and Valencia cut its general rate from 10% to 9% from June 1, 2026. Add notary, registry and legal of roughly 2%; a new-build instead carries 10% VAT plus stamp duty. Buyer-side total: 9–11%. The much-reported 100% surcharge on non-EU buyers, announced in January 2025 and formally tabled as a bill on May 22, 2025, has not been debated or voted in Congress since and was absent from the government’s own January 2026 housing package; as of September 2026 there is no such tax. Treat it as political risk to a future purchase, not a present cost.

France

Frais de notaire on an existing property run 7–8% of price, of which roughly 80% is departmental transfer duty (DMTO), 10–15% the notary’s regulated fee and the rest disbursements; a new-build is 2–3%. The 2025 finance law let departmental councils lift DMTO from 4.5% to 5% until spring 2028, and 83 of the 101 départements had taken the increase by 2026; the exemption for first-time buyers of a principal residence does nothing for a second-home buyer, so check the department before you budget.

Dubai, Mexico and Greece

Dubai’s headline is the 4% Dubai Land Department transfer fee: nominally split 2% each way, in practice paid entirely by the buyer, so an AED 2 million purchase carries roughly AED 85,000–90,000 of government fees before developer no-objection charges, trustee fees and 2% agency plus VAT. Buyer-side total about 6.5%, the cheapest large market here, which is part of why Dubai’s transaction volume behaves as it does.

Mexico runs a state acquisition tax (ISAI) of 2–4.5% depending on the state — 2% in Quintana Roo, 3% in Los Cabos — plus notary at 1–2% of appraised value with 16% IVA on the notary’s fee, registry, appraisal and the fideicomiso setup, for a buyer-side total usually put at 4–6%, and 5–10% in Quintana Roo.

Greece charges a transfer tax of 3.09% — 3% plus a 0.09% municipal levy — on the tax authority’s objective value rather than the price, plus notary at 1–1.5%, land registry at 0.5–1% and a lawyer at about 1%, for a buyer-side total of 6–10%. Greece has also suspended the 24% VAT on new residential property through December 31, 2026.

A mortgage taken in a foreign currency is not a cheaper loan. It is a second position in that currency laid on top of the one you already hold in the house, and the American tax code treats it as a separate asset with its own ordinary-income consequences.

Non-resident lending exists in every European market an American is likely to want, on materially worse terms than a local gets. Loan-to-value commonly caps at 60–70% for non-residents at the mainstream Portuguese and Spanish lenders in 2026 — a deposit of 30–40% of price, on top of your purchase costs — and is generally tighter again in Italy, the lender pricing the difficulty of enforcing against someone with no local assets or income. Underwriting is slow: three months from application to offer is normal, and a mortgage contingency is often unavailable, so a buyer typically signs a promissory contract with a 10% deposit at risk before the loan is certain.

• The loan currency is the exposure. A euro mortgage against a euro house hedges the equity but creates a §988 position on the debt, described in the currency section. A dollar loan against a euro house — a home-equity line on your US residence, say — leaves the currency risk entirely in the asset and none in the liability, which is simpler, usually cheaper, and the route most American buyers of modest overseas property actually use.
• Leverage magnifies a carry you cannot escape. Carry runs 2–4% of value a year against European prime appreciation near 3.3%. Debt service on top turns a break-even consumption asset into a reliably negative one unless the property is let, and the letting rules are tightening.
• The lender’s collateral is not your collateral. Foreclosure in a civil-law jurisdiction is a court process measured in years, and lenders price it. That is the source of the rate premium over a local borrower, and it does not narrow with your US credit score.

Carrying cost converts a price index into a return, and it is the line every price index omits. A second home abroad is empty for forty-plus weeks a year, and almost none of its costs stop while it is.

Recurring property taxes are lower than American ones in absolute terms and structured differently, because most European systems tax a cadastral or register value that lags the market badly rather than an annually reassessed market value.

• Portugal levies IMI at a municipally set 0.3–0.45% of the tax-register value (VPT) on urban property, plus AIMI at 0.7–1.5% on VPT above €600,000 per owner (€1.2 million for a couple filing jointly). Because VPT sits well below price, the effective rate on market value is often nearer 0.25%.
• Italy charges IMU on second homes at a statutory base rate of 0.86% on a revalued cadastral base, which municipalities may cut to 0.4% or raise to 1.06%. Most do the latter: Rome, Milan and Florence all sit at or near the 1.06% ceiling, so budget the top of the range, not the base.
• Spain charges IBI locally and separately taxes non-resident owners on imputed rental income even when the house is empty: a deemed 1.1% of cadastral value where that value has been revised in the previous ten tax periods and 2% where it has not, taxed at 19% for EU/EEA residents and 24% for everyone else, Americans included, and filed on Modelo 210.
• France charges taxe foncière regardless of occupancy, and taxe d’habitation still applies in full to a second home. Communes in tight housing markets may add a surcharge of 5% to 60%: 1,628 communes applied one in 2025, and 3,690 were eligible in 2026.
• The UAE has no annual property tax at all — the single largest structural advantage in this guide, and most of the reason Dubai’s total cost of ownership looks the way it does.

Around those published rates sit the costs nobody quotes: condominium charges of €1,500–€3,000 voted by owners who also do not live there, an unoccupied-property policy whose occupancy warranty often voids cover after 30 or 60 empty days, utility standing charges that run when the meter does not, a keyholder at €150–€250 a month, and maintenance at 1–2% of value, higher on the coast because salt air, closed shutters and unrun plumbing are a maintenance regime of their own.

€12,400 a year is 2.48% of the purchase price, before a single flight, before any mortgage, and before the property earns anything. Escalated at 2.5% a year, ten years of that carry is €138,922. Set it beside a European prime appreciation rate of 3.3% and the whole problem is visible: carry eats three-quarters of the gross return in a good decade and all of it in an average one.

Rental income is the obvious answer to the carry, and it is being legislated away in exactly the markets where second homes concentrate, because a tourist apartment in a housing-short city is politically a housing unit that has been withdrawn.

The Greek case is sharpest, because it is one government doing both things at once: Law 5100/2024 sells residency for a €400,000 or €800,000 home and prohibits short-term letting of that home. Barcelona is the fully worked template — on June 21, 2024 the city announced it would renew none of its roughly 10,100 tourist-apartment licences, all of which expire by November 2028, and Spain’s Constitutional Court upheld its authority in ruling 64/2025 of March 13, 2025. Portugal is the clearest counter-example: Mais Habitação froze new alojamento local registrations nationally in 2023, made licences non-transferable and gave them expiry dates — and Decreto-Lei 76/2024 reversed all three from November 1, 2024, restoring transferable, open-ended licences and reopening registration everywhere except the containment zones individual municipalities still draw. Tightening is the trend, not a law of nature. France, meanwhile, does the same work through price rather than prohibition.

Three consequences follow for an owner who intends to let. The licence is the asset: value has migrated from the building to the permit, and permits are increasingly non-transferable, time-limited or frozen, so verify in writing before exchange that the specific unit holds a current registration that survives a change of owner. A let property is a business in two tax systems: local income tax where the property sits, plus Schedule E in the United States, with foreign residential property barred from the general depreciation system and written off over the alternative-depreciation-system life — 30 years for property placed in service after December 31, 2017, 40 years for anything placed in service before that, against 27.5 years for an American rental.

And personal use kills the deductions: under §280A, personal use exceeding the greater of 14 days or 10% of rental days makes the property a residence and limits deductions to rental income, a test a genuine second home fails almost every year.

Our short-term rentals guide covers the operating side — supply growth, occupancy, the full regulatory map. The point here is narrower: you cannot count on rental income to pay the carry in any market that also sells you residency, and in the markets that do not, you are underwriting an operating business you will run from six time zones away.

US citizens and green-card holders are taxed on worldwide income and, more importantly here, are subject to a reporting regime whose penalties are calculated on asset values rather than on tax owed. The house is usually the least of it; the structure you buy it through and the bank account you buy it with are where the damage happens.

What you must report, and what you need not

Directly held foreign real estate is not a specified foreign financial asset and does not go on Form 8938. That is the most useful and least known fact in this section. Three things around the house do:

• The foreign bank account you open to pay the notary, the utilities and the condominium goes on FinCEN Form 114 (the FBAR) if the aggregate of all your foreign accounts exceeds $10,000 at any moment in the year — a threshold a single deposit on a €500,000 purchase crosses instantly. FBAR goes to FinCEN, not the IRS, and is separate from your return.
• Form 8938 attaches to the return and starts at $50,000 of specified foreign financial assets on the last day of the year — or $75,000 at any point in it — for a single US-resident filer, rising with filing status and to $200,000 at year-end, or $300,000 at any point, for a single filer living abroad. Your foreign accounts count; your directly held apartment does not. Where the house is held through a foreign entity, it is the interest in the entity that is reported, valued to include the property, not the property itself.
• A foreign entity holding the house does. Take the frequently offered advice to buy through a French SCI, a Spanish or Portuguese SL/Lda or an offshore company and you have created an interest in a foreign entity, which is reportable — and depending on classification may pull in Form 5471, Form 8865, or Forms 3520 and 3520-A, each carrying a penalty of $10,000 or more per form per year whether or not any tax was due.

The Mexican fideicomiso is the exception that proves the rule. The IRS spent years treating it as a foreign trust and assessing 3520 penalties against owners who had never heard of the forms; Revenue Ruling 2013-14, issued June 6, 2013, concluded that a Mexican land trust is not a trust for US tax purposes where the bank holds bare legal title and does nothing else. The relief is conditional and fails if the bank holds any other asset or has authority beyond holding title.

The deductions you lose

Foreign real property taxes have not been deductible by individuals since the Tax Cuts and Jobs Act, which added §164(b)(6)(A) for tax years beginning after December 31, 2017. The One Big Beautiful Bill Act, signed July 4, 2025, raised the state and local tax cap from $10,000 to $40,000 for 2025, $40,400 for 2026 and 1% a year thereafter through 2029 — with the cap phasing down above $505,000 of modified AGI in 2026 — and left the foreign exclusion untouched. Your Italian IMU and your French taxe foncière are simply costs. Mortgage interest on a qualified second residence does remain deductible within the $750,000 acquisition-debt limit that OBBBA made permanent, and a foreign home can be that second residence. And §121, the $250,000/$500,000 gain exclusion, does not apply to a second home: it requires two of five years of ownership and use as a principal residence, and §121(b)(5), added by the Housing Assistance Tax Act of 2008, prorates the exclusion away for periods of “non-qualified use” by the ratio those periods bear to the whole ownership period, counting only time from January 1, 2009 onward. Converting a long-held vacation home before selling therefore recovers only the qualified fraction.

The exchange that cannot cross the border

§1031(h)(1) provides that real property located outside the United States and real property located in the United States are not of like kind. You cannot sell an American rental and roll the gain into a Tuscan farmhouse. You can exchange one foreign investment property for another foreign one and defer on ordinary terms, and temporary regulations issued in 2005 carve out the US Virgin Islands, Guam and the Northern Mariana Islands. Otherwise the distinction is geographic and absolute, and it is the boundary between this guide and our 1031 exchange guide, which covers the domestic mechanics, the 45- and 180-day clocks and the DST loads charged for access.

The foreign tax credit, and where it fails

Foreign income taxes are creditable on Form 1116; foreign property taxes are not, because they are not income taxes. Rental income and property gains fall in the passive category, and the credit is limited to the US tax on that same category.

Three failure modes recur. The credit is capped by the US rate, so tax paid to a higher-taxing country leaves a stranded excess credit that carries back one year and forward ten and often expires unused. It is matched by category, so foreign tax on a property gain cannot offset US tax on your salary. And a foreign tax credit cannot offset the 3.8% net investment income tax under §1411. That was for years only the IRS position, and taxpayers beat it at first instance in the Court of Federal Claims by arguing that the credit article of the US–France treaty reached the NIIT. On August 31, 2026 the Federal Circuit reversed them in Christensen v. United States, holding that Article 24(2)(a) of that treaty authorises no such credit, and decided the companion Canada-treaty case Bruyea the same day. The question is settled unless the Supreme Court takes it: model the 3.8% as a flat addition on top of whatever the foreign country took, creditable against nothing.

A dollar investor’s return on a euro house is the product of two independent series — the local price change and the exchange rate — and over any realistic holding period the second is larger and less predictable than the first.

State the mechanism plainly, because it is routinely described backwards. You do not “buy euros” when you buy a Portuguese apartment; you convert dollars into an asset denominated in euros, every dollar you later spend on carry converts again at whatever rate prevails, and the eventual sale converts back. A ten-year hold is roughly forty separate conversions, one large one at each end. The scale of the exposure is set by how far the pair moves, and the euro-dollar rate has covered a range no equity investor would tolerate in a “safe” asset. Since the euro launched it has traded from $0.8225 in October 2000 to $1.6037 in July 2008 — the high is very nearly double the low — and it was back at $0.9535 on September 27, 2022. Set that against European prime growth of 3.3% a year: a 10% adverse move erases three years of appreciation, and a 25% move erases seven.

Hedging a second home is impractical and mostly pointless. A forward or option covering a €500,000 exposure over ten years costs more in carry and rolls than the appreciation it protects, and the notional does not track the asset’s value. The realistic mitigations are to buy with currency you already hold, to fund the annual carry from local income if you have any, and to size the position so a 25% adverse move is survivable rather than ruinous. A pegged currency is a genuinely different asset: the UAE dirham has been fixed to the dollar at 3.6725 since November 1997, held by a central bank that stands ready to deal at that rate in unlimited size, which removes the variable from a Dubai purchase for as long as the peg holds and substitutes a low-probability, high-impact break.

The mortgage trap: §988

A foreign-currency mortgage is, for US tax purposes, a separate transaction from the house. Under §988, gain or loss from exchange-rate movement on a non-dollar debt is ordinary income, not capital gain, realised when the debt is repaid or refinanced. If the dollar strengthens while you hold a euro mortgage, the euro debt shrinks in dollar terms and paying it off crystallises that shrinkage at your marginal rate. The home-sale exclusion does not shelter it, it can arise on a property you sold at a loss, and the mirror image — a currency loss on the same debt — is a non-deductible personal loss, because the borrowing is neither a business nor an investment expense. The asymmetry is complete, and it is a strong argument for funding an overseas second home in dollars.

The one honest consolation is that currency risk is symmetrical, which price risk in a thin resort market is not. If you genuinely intend to spend euros in retirement, a euro house is a partial hedge on a euro liability — and that, not the appreciation, is the strongest financial argument anyone makes for this asset.

Death is the transaction a second home abroad is most likely to be involved in, because the median owner buys in their fifties and never sells, and it is where two legal systems collide most expensively.

Forced heirship, and the election that escapes it

Civil-law jurisdictions do not let you disinherit your children. France’s réserve héréditaire reserves half the estate for one child, two-thirds for two and three-quarters for three or more; Spain, Italy, Portugal and Greece all have comparable protected shares. EU Regulation 650/2012 (“Brussels IV”), which applies to deaths from August 17, 2015 in every EU member state except Denmark and Ireland, lets a person elect the law of their nationality to govern the whole of their succession, which is the standard planning move for an American owner. France legislated against exactly that: the law of August 24, 2021 added a paragraph to Article 913 of the Civil Code, in force for successions opened from November 1, 2021, giving each child a compensatory levy (prélèvement) on assets situated in France to restore their French reserved share — but only where the deceased or at least one child was, at death, a national of an EU member state or habitually resident in one, and the foreign law chosen gives children no protection at all. A purely American family with no EU nationality or residence sits outside the trigger; a family with one child living in Europe does not.

Two estate tax systems, often no treaty

The US taxes the worldwide estate of a citizen, with the exemption raised to $15 million per person from January 1, 2026 under OBBBA. The country where the house sits taxes the transfer on its own rates: Spanish inheritance tax varies enormously by autonomous community, Italian succession tax is low with generous allowances, French rates on non-spouse transfers climb steeply. Double taxation is relieved by treaty, and the United States has estate and/or gift tax treaties with fifteen jurisdictions — Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland and the United Kingdom, plus Canada through the income tax treaty — and not with Spain, Portugal, Mexico, the UAE or the Caribbean CBI states. Without a treaty, relief depends on unilateral credit rules and genuine double taxation is possible.

The practical minimum before you close

Three things, in every jurisdiction. Make a local will covering only the local property, drafted locally and worded so it does not revoke your US will. Make the Brussels IV election explicitly if you are in the EU and want your own national law to govern the succession. And check the marital property regime, because in a community-property country buying in one spouse’s name has consequences at death that an American couple would never anticipate.

Liquidity is where the overseas second home differs most from the domestic one, and buyers underweight it most consistently, because the decision to buy is made on a good week in August and the decision to sell is made under time pressure years later.

Agency commission

Commission is the largest exit line and higher than in most of the United States: 5% plus VAT is standard in Portugal and Spain, 3–5% plus VAT in Italy and France, around 2% in Dubai. On a €672,000 sale, 5% plus 23% Portuguese VAT is 6.15%, or €41,325.

Non-resident capital gains tax

The gain is taxed where the property sits, and the rules for non-residents have converged on the resident rules across the EU under pressure from the Court of Justice. Portugal has taxed non-residents’ property gains on the same 50%-inclusion basis as residents since January 2023, after the Court of Justice struck down the old flat 28% on the full gain, with the included half added to the progressive IRS scale that runs to 48% plus a solidarity surcharge of up to 5%.

Spain charges non-residents a flat 19% on the net gain, EU and non-EU alike, and makes the buyer withhold 3% of the price on account with Form 211 against your Form 210. France charges 19% plus 17.2% of social levies, a headline 36.2%, tapered to nil at 22 years for the income tax and 30 years for the levies — an amendment cutting the income-tax clock to 17 years passed a first reading of the 2026 finance law and was then dropped from the final text, so the old schedule stands. Italy exempts gains on property held more than five years and charges 26% as a substitute tax within five, elected at the deed and not afterwards. Verify each with local counsel before modelling. What is not in doubt is that the foreign tax comes first and the US credit comes second, with the limitations already described.

Time on market

Time on market in a resort submarket is measured in seasons, not weeks. The buyer pool is small, largely foreign and seasonal, its mortgage market is the constrained non-resident market described earlier, and for a decade the marginal buyer in the markets that sold residency was someone buying the permit. When Portugal removed the property route in October 2023 and Spain abolished its programme on April 3, 2025, that buyer left, and he has not been replaced.

Everything above resolves into one calculation: a US couple buying a €500,000 two-bedroom apartment in the Algarve as a second home, holding ten years, using it six weeks a year, letting it never, and selling.

The assumptions, stated

The exchange rate is held at $1.10 = €1 throughout so the arithmetic is legible and the currency effect can be isolated below; the apartment appreciates at 3.0% a year in euros, Knight Frank’s 2025 European prime rate of 3.3% with a haircut; carry escalates at 2.5% a year; and the couple are in the top US capital-gains bracket, so 20% plus the 3.8% net investment income tax. Portuguese IMT of 7.5%, stamp duty of 0.8% and the 50% inclusion of the gain are verified; the 45% rate applied to the included half is an assumption, and a deliberately conservative one — it approximates the 43.5% marginal band a large Portuguese-source gain reaches, not the average rate a couple with no other Portuguese income would actually pay. The consequence is worked through below.

Getting in

Purchase price €500,000; IMT at 7.5% (non-resident second home, flat) €37,500; stamp duty at 0.8% €4,000; notary and land registry €1,200; legal at 1% €5,000; agency €0, paid by the seller in Portugal. Total cash in: €547,700, or $602,470. Entry friction is 9.54% of price.

Holding it

Year-one carry is the €12,400 built in the carrying-cost section. Escalated at 2.5% for ten years that totals €138,922, or $152,814. None of it is deductible in the United States: the IMI is a foreign real property tax barred by §164(b)(6), and there is no rental income for the rest to offset.

Getting out

Sale after ten years at 3.0%: €671,960, an appreciation of 34.4% in euros. Agency at 5% plus 23% VAT (6.15%): −€41,325. Portuguese capital gains tax: the gain for Portuguese purposes is €671,960 less an acquisition cost of €542,700 (price plus IMT, stamp duty and notary) less €41,325 of selling costs, or €87,935, of which half — €43,967 — is included at progressive rates. At the assumed 45% that is roughly €19,800. Net local proceeds: €610,835.

The American bill on top

US basis is the full €547,700 of purchase and acquisition costs at the acquisition-date rate: $602,470. Amount realised is $739,156 less $45,458 of selling costs, or $693,698. US gain: $91,228. Tax at 20% is $18,246 and the net investment income tax at 3.8% is $3,467, for $21,713. The foreign tax credit then does most, but not all, of its job: the Portuguese tax of $21,780 fully offsets the $18,246 of US regular tax, leaving $3,534 of excess credit to carry forward for ten years against passive-category foreign income the couple probably will not have, while the $3,467 of net investment income tax remains payable. Total across both countries: $25,247 on a $91,228 gain, an effective 27.7% at the assumed 45% Portuguese rate, against the 23.8% the same gain on an American second home would have carried, with $3,534 of credit stranded, again at the assumed 45%. Read that pair carefully, and never quote either figure without the assumption attached: both are products of the 45% we chose, not consequences of owning abroad. The next section relaxes it and both numbers go away.

What the 45% assumption is doing

Now relax the one assumption that is doing real work. Run €43,967 up Portugal’s 2026 IRS scale from the bottom — 13.25% on the first €7,703 through 43.5% on the slice above €39,791 — and the Portuguese bill is about €12,100, an effective 27.6% of the included half rather than 45%. That is the better estimate for a couple whose only Portuguese-source income is this sale, and it barely moves the answer: the smaller Portuguese tax means a smaller credit, so more US tax falls due, and the ten-year result improves only from −$86,833 to about −$83,300.

What it does change is the shape of the tax bill. At the lower Portuguese rate the credit is fully absorbed, nothing is stranded, and the combined effective rate falls to exactly the 23.8% an American second home would have carried. The 27.7% and the $3,534 of dead credit are artefacts of paying a high foreign rate, not of owning abroad — which is the general rule: the foreign tax credit works when the foreign rate is below yours and fails when it is above.

The result

The apartment went up 34.4% and the owner is out $86,833. That is not a bearish assumption set — it is 3% appreciation, no vacancy, no special assessment, no currency move and no bad luck. Round-trip friction of 15.65% and a carry of 2.5% a year did all of it.

What the couple got is sixty weeks of use. At €1,500 a week for a comparable letting in the same building that is €90,000, or about $99,000 of accommodation they did not pay for. Against an $86,833 loss the trade is roughly break-even versus renting the same apartment for the same weeks, and negative if they miss a summer. That is the verdict, and it does not change materially with the country.

Moving the currency

A 10% currency move is worth $56,394 on a €500,000 apartment if it goes your way and $64,556 if it does not — three to three and a half years of the whole ten-year euro appreciation either way, and asymmetric against you. And the credit fails precisely when it is needed: at $0.99 the US gain collapses to about $21,900, so there is almost no US tax for the Portuguese tax to offset, and roughly $15,000 of it is stranded rather than relieved.

Most of what goes badly wrong in overseas property is not a price fall. It is a defect in what you bought, a counterparty who did not build it, or a rule that changed after you committed — and in every case the American owner’s remedy is a foreign court in a foreign language.

Title and planning defects

The register tells you who owns the land; it does not always tell you whether the building on it was lawfully built. Spain’s building boom produced unlawful ones at scale: on the Junta de Andalucía’s own count, roughly 300,000 of the 500,000 buildings on non-developable land in Andalusia are irregular, put up without valid municipal licences along a coastline of nearly 1,000 kilometres. A 2019 decree created the AFO, a certificate recognising an irregular building once it is six years old, which makes many of them sellable — but it does not reach anything under a live demolition order, and on protected coastal land the authorities may order demolition however long ago it was built. Buyers who had paid, registered and insured have discovered that a registered title over an unlawful structure is exactly that.

The diligence is specific: obtain the licencia de primera ocupación or local equivalent, the completion certificate, and municipal confirmation that the built area matches the permitted area. In Italy the equivalent question is conformità urbanistica e catastale — does the building as it stands match the plans on file — and an unresolved discrepancy makes a property unsellable and unmortgageable.

The developer who does not finish, and the deposit you cannot get back

Off-plan purchase transfers your money to a developer’s balance sheet in exchange for a promise. Dubai’s 2008–2009 crash is the case study: prices fell about 40% in the first quarter of 2009 alone and 50–60% from peak in the worst-hit areas, and marquee projects including Dubailand, The Lagoons and the Arabian Canal were halted outright. Law No. 8 of 2007 had created the escrow regime before the crash but it was not effectively enforced, so buyer money and developer money had been commingled. What the emirate now runs — per-project escrow released against verified construction progress, RERA registration, developer solvency requirements — exists because the first generation of buyers was not protected. No official figure for the share of projects ultimately cancelled was published. Those protections are only as good as the specific instrument: verify that payments go to a project escrow account, not the developer’s operating account, and that the bank guarantee names you.

Separately, the civil-law sequence puts a 10% deposit at risk months before completion — Portugal’s contrato promessa, typically signed with a 10% sinal, carries the Civil Code Article 442 remedy — a defaulting buyer forfeits the deposit, a defaulting seller repays it twice over — and there is no statutory cooling-off period at all. France’s compromis de vente gives a non-professional buyer ten calendar days to withdraw by registered letter, with the deposit returned inside 21 days, and then binds. Inspection and financing contingencies must be written into the promissory contract expressly, by your lawyer, before it is signed.

Yield guarantees and wire fraud

A developer offering a “guaranteed 6% rental return for five years” is paying you that yield out of your own purchase price, and the guarantee is worth the credit of a single-project SPV. The tells are constant: the yield is paid by the entity that set the price, and the exit is into a resale market composed of other people holding the same units. Conveyancing wire fraud is the fastest-growing loss in cross-border property and the least insured — payment instructions arriving by email are the known attack, and the control is to telephone the notary on an independently obtained number, verify the IBAN verbally and send a test transfer first. A €500,000 wire to a fraudulent account is unrecoverable.

The rule that changes after you commit

Portugal removed the property route in October 2023. Greece tripled the Attica threshold on September 1, 2024. Spain abolished its programme on April 3, 2025. The ECJ voided Malta’s passport on April 29, 2025. Barcelona’s 10,100 tourist licences expire by November 2028. Canada’s foreign-buyer ban runs to January 1, 2027 and Australia’s to June 30, 2029. Every one was announced with less than a year’s notice, and none compensated an existing owner. Price the possibility that the rule under which you bought will not be the rule under which you sell.

The sequence below puts the expensive, irreversible decisions after the cheap, reversible ones, which is the opposite of how most overseas purchases happen.

1. Rent the specific place for two off-season months before you look at anything. Not the resort — the town, in February or November, when the restaurants are shut. The commonest regret in this asset is a house in a place that is wonderful for three weeks a year.
2. Do the rent test in writing. Weeks of realistic use × local weekly rent × years of intended hold, against round-trip friction plus total carry. If it fails, you are buying a lifestyle, which is legitimate — but size it as spending.
3. Retain your own lawyer in the country, independent of the agent and the developer, before you view. Expect 1% of price. The notary is not your lawyer, and an agent’s recommended lawyer is not independent.
4. Get the tax number and the bank account early. A Portuguese NIF, an Italian codice fiscale, a Spanish NIE: each takes weeks and nothing proceeds without one. The account itself creates your FBAR obligation the moment the balance passes $10,000.
5. Retain a US cross-border tax adviser before you sign, not after. Put four specific questions: whether any proposed entity triggers Form 5471, 8865 or 3520 reporting; how the foreign tax credit will actually work on sale; whether the mortgage creates a §988 position; and what the estate-treaty position is with this specific country.
6. Run title, planning and completion certificates to ground. Built area versus permitted area, occupation licence, cadastral conformity, condominium accounts and reserve fund, pending assessments, and — if you intend to let — a current, transferable rental registration in the unit’s own name.
7. Fix the currency before you exchange contracts. Decide whether you are converting now, borrowing locally or funding from a US line; if converting, use a specialist payment provider rather than a retail bank, because the spread on €500,000 is a real number.
8. Write the local will and make the succession election alongside the purchase, with the notary already doing the deed; it costs a few hundred euros now and many thousands later. Then budget the first year’s carry in cash — 2.5% of price, in local currency, in the local account, before completion.

Each of these is a specific, dated reading that would change the view in this guide. All are as of September 2026.

Programme and policy thresholds

• Greece’s Law 5100/2024 tiers, at €800,000 in Zone A and €400,000 in Zone B since September 1, 2024. Unchanged through September 2026, with Law 5275/2026 of February 6 cutting processing to roughly four to six months. Another increase, or an extension of the short-term-letting ban beyond golden-visa homes, would mark the trajectory Portugal and Spain have already completed.
• Portugal’s fund route, at €500,000 with a five-year minimum maturity and 60% invested in Portuguese-based companies, and the new nationality law of May 3, 2026 that pushes citizenship out to ten years. Watch for the investment route narrowing the way the property route did.
• Canada, January 1, 2027, and Australia, June 30, 2029. Both bans have been extended once; extension is the base case and expiry would be the news.
• Spain’s 100% non-EU buyer surcharge, announced January 2025 and tabled as a bill on May 22, 2025, but never debated or voted since, absent from the government’s January 2026 housing package, opposed by the government’s own parliamentary partners and doubted by constitutional and EU-law specialists. The bill reaching committee would be the signal to stop underwriting Spanish purchases at current friction.
• The ECJ’s Malta judgment of April 29, 2025. Watch whether its reasoning is extended from citizenship to residency-by-investment, which would put the Greek and Portuguese schemes in scope.

Market readings

• Knight Frank’s PIRI 100 annual print, +3.2% in 2025 against +3.6% in 2024 with 73 of 100 markets up. PIRI has printed negative before — in 2008 values fell across three-quarters of its locations, Hong Kong by 24.5% and London by 16.9% — so a print below zero would not be a first, but it would be the first since the financial crisis.
• Dubai’s growth rate against its transaction count: 205,400 transactions in 2025, up 18%, worth AED 544.2 billion, up 25%, with prices up 25.1% on PIRI but forecast near 3% prime and 1% mainstream for 2026. Volume holding while price growth normalises is a healthy handover; volume falling with it is not.
• Our own tape: the Luxury Real Estate sub-index at 101.043 on September 8, 2026, +1.04% over one year, and Parcl Labs at $453.12 on September 7, 2026. These measure the American house you did not buy.

The US tax lines

• §164(b)(6), which keeps foreign real property taxes non-deductible; OBBBA raised the SALT cap to $40,000 for 2025 and $40,400 for 2026 without touching it. Restoration would be worth roughly 0.25–0.5% a year of carry on a European apartment.
• The estate exemption at $15 million per person from January 1, 2026. A reduction moves the estate-treaty question from a planning footnote to a central cost.
• The foreign tax credit against the net investment income tax. The Federal Circuit closed the treaty argument on August 31, 2026 in Christensen and Bruyea, reversing two taxpayer wins. Watch for a petition to the Supreme Court or a legislative fix; either would cut about 3.8 points off the effective rate in our worked example.