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Buying Property in Colombia: What It Means for Your US Taxes
If you are a US citizen or green-card holder buying real estate in Colombia -- an apartment in El Poblado, a finca outside Medellin, a rental in Laureles -- the Colombian side is only half the story. The IRS has its own rules for foreign real estate, and several of them surprise people.
Let's start with the biggest surprise: foreign real estate is generally NOT an FBAR asset. The FBAR (FinCEN Form 114) covers foreign financial accounts -- bank, brokerage, mutual fund accounts. A piece of land or an apartment is not a financial account. You do not report the property itself on the FBAR.
But that is where the simplicity ends. Once the property generates income, is held in a structure, or gets sold, US reporting obligations stack up. This post covers the US side with authority. The Colombian-side taxes -- predial, the retention withheld at sale, and IVA on new construction -- are covered here against current Colombian law, with anything genuinely unsettled flagged for your contador rather than guessed at.
This post is education-only. Every case is different; results are never guaranteed. An Enrolled Agent can review your specific situation.
The US Side: What Triggers Reporting
1. Rental Income Is US-Reportable
If you rent out the property -- long-term, short-term, Airbnb -- the rental income is reportable on your US Form 1040. US citizens and green-card holders are taxed on worldwide income.
You can deduct expenses: property management, repairs, utilities, insurance, and depreciation. But the IRS has its own depreciation conventions for foreign residential rental property, and you must track the basis in US dollars. If your Colombian contador is depreciating in pesos under DIAN rules and you are depreciating in dollars under IRS rules, the two schedules will never match. That is fine -- they are separate systems -- but you need someone who understands both.
On the US side the schedule is fixed and non-negotiable: foreign residential rental property is depreciated straight-line over 30 years under ADS for property placed in service after 2017 (40 years for foreign non-residential), rather than the 27.5 years that applies to US residential rental. Whether Colombia grants a corresponding deduction on the same asset, and on what schedule, is a Colombian-side question for your contador -- the practical point is that the two schedules will not line up, and your US basis and Colombian basis need to be tracked separately from day one.
2. The Peso Mortgage FX Trap
If you took out a mortgage in Colombian pesos, you have a foreign-currency-denominated debt. When the peso weakens against the dollar, your dollar-denominated mortgage liability shrinks. Under US tax rules, that reduction is a foreign currency exchange (FX) gain -- and it is taxable.
You did not sell anything. You did not receive cash. But the IRS sees your debt as denominated in a foreign currency, and when that currency depreciates, your liability in USD terms drops. That drop is income. If the property is a rental, the FX gain may flow through Schedule E. If it is a personal residence, the treatment may differ. This is not a DIY calculation.
3. Selling the Property: Capital Gains Reporting
When you sell Colombian real estate, the US requires you to report the sale on your Form 1040. The gain or loss is calculated in US dollars, using the exchange rate at purchase (for basis) and at sale (for proceeds).
Two complications:
Exchange rate timing. If you bought when the peso was at 3,000 to the dollar and sold at 4,000, you may have a dollar-denominated gain even if the property price in pesos stayed flat. The IRS cares about the dollar-denominated result, not the peso-denominated one.
Colombian retention at sale. Colombia typically withholds a percentage of sale proceeds as a tax retention. That withholding may be creditable on the US return as a foreign tax paid, but you need the documentation to prove it.
Under Article 398 of the Estatuto Tributario, when a natural person sells a fixed asset the notary withholds a retention of 1% of the sale value at the moment of the transaction. That 1% is a prepayment against Colombian tax, not the final tax. Retention treatment can differ where the seller is a non-resident or where the property is held through an entity, so have your contador confirm the rate that applies to your specific sale before you sign -- and keep the notarial documentation, because it is what substantiates any Foreign Tax Credit claim on the US side.
4. Property Held in a Colombian Entity: Form 5471
Some buyers hold Colombian real estate through a local entity -- a SAS (Sociedad por Acciones Simplificada) or similar structure. If you own a foreign corporation, even one whose only asset is a piece of real estate, you likely have a Form 5471 filing obligation.
Form 5471 is an information return, but the penalties for failing to file it are severe -- $10,000 or more per year, assessed automatically. For the full breakdown, read our post on Form 5471 and expat automated penalties. The entity may also trigger PFIC analysis if it holds primarily passive assets. Do not assume a foreign holding company for real estate is a clean workaround.
5. FBAR and FATCA: What Still Applies
The property itself is not an FBAR asset. But:
A Colombian bank account holding rent proceeds or a mortgage escrow IS on the FBAR. The threshold is aggregate: all foreign financial accounts combined exceeding $10,000 USD at any point triggers filing.
FATCA Form 8938 may apply if your foreign financial assets exceed reporting thresholds. Real estate held directly is generally not a specified foreign financial asset, but foreign accounts and interests in foreign entities may be.
For the full comparison, read FBAR vs. FATCA Form 8938: the differences.
The Colombian Side: What to Verify
The Colombian-side obligations are real. Here is what current law sets, and where the answer depends on your specific transaction:
Predial (property tax). Municipal property tax assessed annually by the local alcaldia. Rates and valuation methods vary by municipality.
Predial is assessed on the avaluo catastral (cadastral value) rather than your purchase price. Under Law 44 of 1990 each municipal council sets its own rate, generally between 5 and 16 per thousand (0.5% to 1.6%) of cadastral value, with higher rates permitted on undeveloped urbanizable land. Because the rate is municipal, Medellin, Envigado, Sabaneta and Bogota each differ -- confirm your specific rate and current cadastral valuation with the local alcaldia or your contador.
IVA on new construction. Value-added tax may apply to newly constructed property, depending on property type and price threshold.
IVA treatment of newly constructed residential property has changed more than once in recent Colombian reforms, and it interacts with property type and price thresholds. We are not going to print a rate here that may not apply to your purchase -- confirm the current treatment with your contador before you sign a pre-construction contract, since it is priced into the purchase rather than billed to you later.
Retention at sale. As noted above, a tax retention is typically withheld at sale.
As described above, Article 398 sets a 1% retention on the sale value for natural persons, withheld by the notary, with different treatment possible for non-resident sellers and entity-held property.
How ASTR Handles the US Side
All State Tax Resolution is a US tax firm owned by Sabih Shafi, a federally licensed Enrolled Agent. We handle rental income reporting on Schedule E, FX gain/loss on peso mortgages, capital gains reporting on foreign property sales, Form 5471 for entity-held property, FBAR and Form 8938 compliance, and Foreign Tax Credit coordination. We coordinate with your Colombian contador or our licensed in-country partners. We do not prepare the Colombian-side returns, but we know what to ask for.
For broader context on US expat taxes in Colombia, read our guide on shielding your income with the FEIE and when DIAN taxes your worldwide income.
Book Your Free Review: https://www.allstatetaxresolution.com/booking-calendar/free-tax-review-20-min?referral=service_list_widget
Call or text (323) 900-0305.
This post is for general education only. Every tax situation is different. Results are never guaranteed. Colombian-side tax figures, rates, and deadlines must be confirmed with a licensed in-country professional against current DIAN and municipal regulations.
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