Learn how U.S. tax residency affects foreign accounts, PFICs, foreign companies, and rental income—and why pre-arrival planning matters.
Moving to the United States can be an exciting step for an individual or family. It can also create a major change in tax obligations—particularly for people who continue to own bank accounts, investments, companies, or real estate outside the United States.
U.S. tax residents generally report worldwide income, not only income earned or received in the United States. Once U.S. tax residency begins, interest from foreign accounts, gains from foreign investments, business income, and rent from property abroad may all become relevant. Separate information-reporting forms may also be required even when an asset produces little or no taxable income.
Many costly cross-border tax problems arise because a newcomer first reviews these issues after moving. By that point, the person may already be a U.S. tax resident and may have fewer planning options. A careful pre-arrival review can identify exposures, organize records, and allow appropriate changes before the U.S. rules apply.
Consider Alex, a foreign individual who has received a Green Card through the lottery and plans to move to the United States next April. Alex worked abroad for five years and accumulated several financial accounts in the home country. Alex also owns 20% of a small foreign real estate company. Two years ago, Alex inherited foreign investment funds and a rental property.
Nothing about this financial profile is necessarily unusual or problematic in Alex’s home country. From a U.S. perspective, however, it raises several separate questions:
These questions are best addressed before the residency starting date, rather than during the pressure of preparing the first U.S. tax return.
For a non-U.S. citizen, receiving an immigrant visa abroad does not, by itself, necessarily begin U.S. income tax residency. Under the green card test, if an individual does not also meet the substantial presence test, the residency starting date is generally the first day the individual is present in the United States as a lawful permanent resident.
For example, assume a Green Card is issued in 2026, but the person first enters the United States as a lawful permanent resident on April 1, 2027. Assuming the person was not already a U.S. tax resident under another rule, U.S. tax residency would generally begin on April 1, 2027. The IRS describes this rule in its guidance on the green card test and residency starting and ending dates.
The analysis should not stop there. A person may become a U.S. tax resident under the substantial presence test before becoming a lawful permanent resident. That test considers U.S. presence during the current year and weighted days from the two preceding years. Treaties, exceptions, and elections can also affect the result.
The year in which residency begins is often a dual-status year: the individual is treated as a nonresident for part of the year and as a resident for the remainder. Dual-status returns have special filing rules and limitations, so the precise starting date affects both the income reported and the forms required.
U.S. citizens are different. They are generally subject to U.S. tax reporting on worldwide income even when living abroad. Therefore, a person who acquired U.S. citizenship at birth, including some dual nationals who have never lived in the United States, may already have U.S. filing obligations before moving.
After U.S. tax residency begins, foreign-source income generally becomes part of the U.S. federal income tax calculation. This may include:
Income must generally be reported in U.S. dollars. That creates practical issues when income, expenses, taxes, purchase prices, and sale proceeds are denominated in another currency. Records maintained for local tax purposes may not contain the information required to calculate U.S. taxable income.
Foreign taxes do not automatically eliminate the U.S. filing obligation or remove foreign income from the return. Depending on the circumstances, a foreign tax credit, deduction, exclusion, or treaty provision may reduce double taxation. The timing and character of income and foreign taxes can be critical, however, and the U.S. and foreign systems may classify the same item differently.
Newcomers often assume that a foreign account is irrelevant because it existed before the move, produces no income, or remains in the home country. That assumption can be dangerous. U.S. international reporting often focuses on ownership, financial interest, signature authority, or account value—not simply taxable income.
The FBAR, FinCEN Form 114, is an electronic report filed separately from the federal income tax return. A U.S. person generally must file an FBAR when the aggregate value of reportable foreign financial accounts exceeds $10,000 at any time during the calendar year. The threshold applies to the combined value of the accounts, not separately to each account. Bank, brokerage, and certain other financial accounts may be covered. The IRS provides an overview of the FBAR requirements.
Form 8938, Statement of Specified Foreign Financial Assets, is attached to the federal income tax return. Its thresholds vary based on filing status and whether the taxpayer lives in or outside the United States. Its asset coverage also differs from the FBAR. For example, certain interests in foreign entities or foreign financial instruments may be relevant to Form 8938 even when they are not foreign financial accounts for FBAR purposes.
Filing one form does not replace the other. A taxpayer may need to file both. The IRS maintains a helpful comparison of Form 8938 and FBAR requirements.
Before moving, newcomers should inventory accounts and assets, including account numbers, institutions, countries, ownership, and annual values. Joint, dormant, signature-authority, and entity-held accounts should not be overlooked.
Foreign mutual funds, investment trusts, exchange-traded funds, and similar pooled investments may be classified as PFICs under U.S. tax law. The classification depends on the foreign corporation’s income and assets, not merely on the name of the product. An investment that is ordinary and tax-efficient in another country can be highly complicated once held by a U.S. person.
A U.S. person who directly or indirectly owns a PFIC may be required to file Form 8621. In many cases, a separate form is needed for each PFIC. The default tax regime can impose unfavorable treatment on certain distributions and gains, including an allocation over the holding period and an interest charge. Alternative regimes, including a qualified electing fund election or a mark-to-market election, may be available only when detailed requirements are satisfied. The current Form 8621 instructions explain the filing categories and tax regimes.
PFIC compliance is often difficult because foreign institutions may not provide historical cost data or information required for U.S. elections. Foreign funds should therefore be reviewed before residency begins. It may be appropriate to sell or restructure investments, retain selected holdings, or replace pooled funds. Any action must also be evaluated under the home country’s rules.
An interest in a foreign corporation can create reporting even if the company is small, closely held, or owns only real estate. Form 5471 filing requirements depend on several factors, including the percentage owned, changes in ownership, control, the status of other shareholders, and direct, indirect, or constructive ownership rules.
Alex’s 20% interest therefore cannot be evaluated by percentage alone. The company’s classification, all shareholders, family relationships, entity structure, activities, income, and balance sheet may matter. If the entity is treated as a partnership or disregarded entity for U.S. purposes, other forms may apply instead. The IRS notes that Form 5471 applies to U.S. persons with specified relationships to certain foreign corporations; the detailed categories appear in the Form 5471 instructions.
Foreign-company reporting can require financial information that a minority owner does not routinely receive. It is wise to discuss access to accounting records and shareholder information before U.S. filing deadlines arise.
Foreign real estate held directly is generally not itself reported on an FBAR or Form 8938. A foreign account used to collect rent may be reportable, however, and an interest in a foreign entity that owns the property may also be a specified foreign financial asset. This distinction is reflected in the IRS comparison of the two reporting regimes.
Once the owner becomes a U.S. tax resident, foreign rental income generally must be reported. The U.S. calculation may differ from the foreign tax calculation. Expenses must be categorized under U.S. rules, and depreciation may be required using U.S. methods and recovery periods. The property’s historical cost, improvement costs, land allocation, acquisition date, and currency-conversion data may all be necessary.
Inherited property creates additional basis questions. A local inheritance-tax value should not automatically be assumed to be the correct U.S. tax basis. Obtaining appraisals and retaining inheritance documents before moving can prevent difficulties later.
Before the U.S. residency starting date, a newcomer should consider the following steps:
Pre-arrival planning is not simply about reducing tax. It is also about avoiding missed forms, preserving documentation, understanding cash-flow consequences, and selecting investments and ownership structures that can be administered efficiently after the move.
The best time to address U.S. international tax issues is usually before U.S. tax residency begins. A structured review can clarify when worldwide reporting starts, identify accounts and assets that require disclosure, uncover PFIC or foreign-entity complications, and create a practical plan for the first U.S. filing season.
CHI Border Inc. assists cross-border individuals and their families with U.S. international tax planning and compliance. If you are preparing to move to the United States—or if you are a U.S. citizen or dual national living abroad—consider scheduling a consultation before making changes to foreign investments, companies, or real estate.
Disclaimer: This article is provided for general educational and informational purposes only and is not intended to constitute tax, legal, accounting, investment, or immigration advice. U.S. international tax rules are complex, fact-specific, and subject to change, and the discussion above does not address every exception, election, treaty provision, filing threshold, or state and foreign-country consequence. Reading this article does not create a professional-client relationship with CHI Border Inc. You should consult qualified tax and legal advisers who can evaluate your particular circumstances before taking or refraining from any action.
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