Form 8938 and Foreign Real Estate: When You Need to File

Form 8938 ("Statement of Specified Foreign Financial Assets") was created by the Foreign Account Tax Compliance Act (FATCA) of 2010 and is codified at IRC §6038D. It requires US individuals with "specified foreign financial assets" exceeding certain thresholds to file an information return along with their annual tax return.

The IRS's own About Form 8938 page and Publication 5151 (FATCA Individual Reporting Requirements) are the primary sources, and they're unusually clear by IRS standards. The form itself lives at Form 8938 (PDF) with its instructions.

The form's purpose is to catch assets that the IRS can't easily get information on from US financial institutions — i.e., foreign ones. It's a disclosure form, not a tax-calculation form. Filing it doesn't create additional tax; failing to file it creates penalties ($10,000 per year per unreported asset, rising to $50,000 after 90 days of continued failure, plus a 40% accuracy-related penalty on any understatement of tax related to the unreported asset).

Key phrase: "specified foreign financial asset." The definition is in Treas. Reg. §1.6038D-3 and includes:

• Financial accounts maintained by a foreign financial institution (bank accounts, brokerage accounts)
• Foreign stock or securities not held in a financial account
• Any interest in a foreign entity (partnership, trust, corporation)
• Any financial instrument or contract with a foreign issuer

What's NOT a specified foreign financial asset:

• Foreign real estate held directly in your own name
• Personal property (art, furniture, vehicles) located abroad
• Foreign currency held in a safe-deposit box
• Precious metals held directly

So the baseline rule is simple: if you own a Lisbon apartment in your own name, the apartment itself is not reported on Form 8938. The IRS's own FAQ on FATCA reporting for individuals explicitly confirms this.

Form 8938 has filing thresholds that depend on (a) your filing status, and (b) whether you live inside or outside the US. The thresholds are higher for expats — a deliberate choice to reduce compliance burden on Americans who actually live abroad.

Taxpayers living in the US:

• Single or MFS: File if total specified foreign financial assets > $50,000 at year-end OR > $75,000 at any point during the year
• MFJ: File if total > $100,000 at year-end OR > $150,000 at any point

Taxpayers living abroad (a "qualifying expat" under Form 8938 standards):

• Single or MFS: File if total > $200,000 at year-end OR > $300,000 at any point
• MFJ: File if total > $400,000 at year-end OR > $600,000 at any point

The "living abroad" definition is similar but not identical to the FEIE's bona fide residence test. Under Treas. Reg. §1.6038D-1(a)(11), a taxpayer qualifies for the higher threshold if they are a US citizen who was a bona fide resident of a foreign country for the entire tax year, OR a US citizen/resident whose tax home is in a foreign country and who was physically present in a foreign country for at least 330 days during any period of 12 consecutive months.

Note that these are thresholds for filing, not for tax owed. Even small amounts of foreign assets get reported once you cross the threshold.

If you don't cross the threshold, you don't file Form 8938 at all — even if you have $45,000 in a Portuguese bank and a Lisbon apartment worth $500,000. The apartment doesn't count toward the threshold, and the bank account is under the threshold, so no filing.

If you do cross the threshold via foreign bank accounts or securities, you file Form 8938 listing those specific assets. The personally-owned foreign real estate still doesn't appear on the form.

The IRS comparison of Form 8938 and FBAR page is an essential reference — it's a single table that clarifies which form applies to which asset type and the differences between them.

The baseline rule ("directly held real estate isn't reported") has important exceptions tied to how you hold the property. The moment you interpose any entity between yourself and the real estate, your interest in the entity becomes a "specified foreign financial asset" — and now Form 8938 can apply.

Holding property through a foreign corporation: This is the clearest example. If you own a Portuguese apartment through a Portuguese SA or Lda (limited company), you own shares in a foreign corporation. The shares themselves are reportable as foreign stock under Form 8938 (and also on Form 5471 if the corporation is a Controlled Foreign Corporation). The value reported is the fair market value of your equity interest, not just the property value.

Holding property through a foreign LLC or partnership: Same basic principle. Your interest in a foreign LLC is a foreign partnership interest, reportable on Form 8938 (and potentially Form 8865). The reportable value is your percentage interest in the entity.

Holding property through a foreign trust: Foreign trusts are their own compliance monster. You may need to file Form 8938 (for the trust interest), Form 3520 (for transfers and distributions), and Form 3520-A (for the trust's annual return). Foreign trusts are one of the most aggressively audited reporting areas in international tax, and the penalties for missing a 3520/3520-A are severe (minimum $10,000 per year, or 5-35% of transfers).

Holding property through a US LLC: If the LLC is a US entity, even if it owns foreign property, the LLC itself is a US entity. A single-member US LLC is disregarded for federal tax purposes, so the owner is treated as holding the property directly — back to the "directly held, not reportable" rule. A multi-member US LLC is a partnership that files Form 1065, but the partnership's assets aren't reported on Form 8938 by the individual partners. This is a relatively clean path for Americans who want liability protection without the foreign reporting headache.

The Mexican fideicomiso exception: Mexico's restricted-zone real estate held through a fideicomiso bank trust would seem to trigger all the foreign trust rules. But the IRS explicitly carved out this structure in Revenue Ruling 2013-14, ruling that fideicomisos used solely to hold Mexican residential real estate for the beneficial owner are not foreign trusts for §6048 purposes, and therefore don't trigger Form 3520/3520-A filing. Whether Form 8938 applies to the fideicomiso interest itself is a slightly different question — the IRS hasn't issued specific guidance, but the conservative view is that a bare-title bank trust is not a "foreign financial account" and not a "foreign trust" for Form 8938 either. Most cross-border CPAs treat Mexican fideicomisos as non-reportable on Form 8938 (but reportable on Schedule E for rental income and the annual fee is deductible). See our fideicomiso glossary and can Americans buy property in Mexico posts for the Mexican mechanics.

These two forms overlap significantly and Americans routinely confuse them. Here's the clean separation:

FBAR (FinCEN Form 114) is not an IRS form — it's a Treasury form administered by FinCEN, due April 15 with automatic extension to October 15. It applies to US persons with financial accounts at foreign financial institutions, if the aggregate value exceeded $10,000 at any point during the year. The threshold is much lower than Form 8938's.

Form 8938 is an IRS form filed with your annual tax return. It applies to a broader list of specified foreign financial assets but has a higher threshold than FBAR.

Both apply to foreign bank accounts and foreign brokerage accounts. But:

• FBAR captures some things Form 8938 doesn't: signature authority over foreign accounts owned by others (e.g., a foreign employer's account), foreign insurance contracts with cash value, accounts you don't own directly but can sign on
• Form 8938 captures some things FBAR doesn't: directly held foreign stock not in a brokerage account, interests in foreign partnerships and trusts, foreign private equity or hedge fund interests
• Neither captures personally held foreign real estate

The IRS Form 8938 vs FBAR comparison table is the cleanest quick reference and worth bookmarking. Our FBAR foreign real estate post covers the FBAR side in detail.

Penalties: FBAR non-filing penalties are notoriously brutal — up to $12,921 per non-willful violation and up to the greater of $129,210 or 50% of the account balance per willful violation (current amounts are inflation-adjusted; see FinCEN penalty schedule). Form 8938 penalties start at $10,000 per year and escalate. Both have criminal penalties for intentional evasion.

For Americans who have neglected prior-year filings, the two main amnesty-ish programs are the Streamlined Filing Compliance Procedures (for non-willful non-filers) and the Delinquent FBAR Submission Procedures (for cases where taxes were paid but FBARs weren't filed). Neither is a "get out of jail free" card, and both should be pursued with a cross-border attorney, but they're significantly better than the standard penalty structure.

Here's a subtle point that confuses a lot of American landlords: if you hold foreign real estate directly and it generates rental income, the rental income is reportable on Schedule E (see our FEIE won't cover foreign rental income and how US taxes rental income from Mexico posts), but the property itself is still not reportable on Form 8938.

However, the foreign bank account where you deposit the rental income is reportable on FBAR and potentially on Form 8938. If you have a Portuguese bank account that holds $12,000 of rental deposits through the year, you owe an FBAR. If you cross the Form 8938 threshold (via that account plus other foreign assets), you also file Form 8938 and list the bank account — but still not the property.

This creates a weird asymmetry where the passive asset (the building) is invisible to Form 8938 but the incidental asset (the rental deposit account) is fully reportable. It's a quirk of how the FATCA statute was drafted — it targeted "financial" assets specifically and real estate deliberately was excluded from the definition.

One more wrinkle: if your foreign rental property is financed by a foreign mortgage, the foreign mortgage isn't reported either. Debt obligations to foreign persons aren't on the Form 8938 asset list. So the common American setup — Portuguese apartment held directly, Portuguese mortgage, Portuguese bank account for rental deposits — has exactly one reportable item (the bank account, if it exceeds thresholds), even though the total economic footprint is hundreds of thousands of dollars.

The IRS Schedule E instructions for foreign property cover the income-reporting side, and Publication 527 covers residential rental property. For the interaction between Form 8938 and business/investment entities, Publication 5151 is authoritative.

After reading two years of American expat tax threads, here are the most common Form 8938 misconceptions:

1. "I don't own foreign property because it's in an LLC." Wrong — the LLC interest is itself reportable as a foreign partnership or foreign corporation interest, depending on its classification. Forming an LLC does not eliminate the reporting burden; it shifts it from zero (personal holding) to a real Form 8938 obligation.

2. "I don't need Form 8938 because I don't have rental income." Wrong — Form 8938 applies based on the existence and value of specified foreign financial assets, not based on whether they generate income. You can have a dormant foreign brokerage account with $100,000 and owe a Form 8938 filing even if it earned nothing that year.

3. "I don't need Form 8938 if I'm under the threshold on December 31." Wrong — both the year-end threshold and the "any time during the year" threshold matter. If you had $250,000 in a foreign account in July and withdrew most of it by December, you still need to file.

4. "Form 8938 replaces my FBAR." Wrong — they're separate obligations with separate thresholds and separate penalty regimes. Many taxpayers need to file both for the same tax year on the same foreign accounts.

5. "Joint accounts with a non-US spouse don't count." Wrong — if you're a US person with signature authority or beneficial ownership over a foreign account, your share (or 100% in some joint account scenarios) is reportable. The non-US status of your spouse doesn't shield the account.

6. "I don't need to report because I filed FBAR." Wrong — see #4. They're separate forms.

7. "The fideicomiso makes my Mexican property reportable." Debatable but usually wrong — see the fideicomiso discussion above. Revenue Ruling 2013-14 settled the foreign trust issue, and most practitioners treat bare-title fideicomisos as non-reportable on Form 8938 for the underlying real estate.

8. "Form 8938 is only for wealthy people." Wrong for expats — the $50,000 threshold for US residents is low enough that even a moderately-funded Canadian or Mexican bank account from a part-time expat can trigger filing.

For discussion and war stories from other filers, r/ExpatTaxes, r/tax, and r/personalfinance's international threads are reasonably active. The American Citizens Abroad Form 8938 guide is the cleanest English-language overview outside the IRS's own docs.

Form 8938 is narrower than most Americans think when it comes to real estate. Personally-held foreign property is not a specified foreign financial asset — it's simply not on the form's radar. You can own a $2 million house in Paris in your own name and not have a single Form 8938 reporting obligation related to the house itself.

What triggers Form 8938 is the accompanying financial infrastructure: the foreign bank account where rental income lands, the foreign brokerage where you hold investments, the foreign LLC or corporation you set up to hold the property (which makes the situation dramatically worse, not better), and any foreign trust or partnership interest.

The planning rule for Americans who want to minimize compliance burden: hold foreign real estate in your own name (or through a disregarded US LLC for liability protection), use the simplest possible bank structure in the foreign country, and avoid foreign corporations or foreign trusts entirely unless a specialist tax attorney has walked you through the full consequences.

If you're unsure whether your specific structure is reportable, the answer is to hire a cross-border CPA for a one-time review — not to guess. The penalties for getting this wrong are the harshest in the entire US international tax compliance system, and the form itself is not where you should be cost-cutting. Start with our FBAR foreign real estate and avoiding double taxation on foreign property posts to get the broader context, then talk to a professional about your specific facts.