U.S. tax reality for Americans buying real estate in the UAE

Dubai’s economy and real estate market continue to pull in foreign buyers, including U.S. citizens. Some live in their properties. Others invest. Many assume that buying abroad changes their tax exposure.

It does not.

U.S. citizens remain subject to U.S. tax on worldwide income, regardless of where they live or invest. Foreign real estate does not get a hall pass.

U.S. taxes still apply

Rental income from UAE property is fully taxable in the United States. Gifts of foreign real estate are subject to U.S. gift tax rules. Foreign real estate is included in a U.S. taxpayer’s taxable estate at death.

The UAE imposes no personal income tax, no gift tax, and no estate tax. That helps. It does not replace U.S. obligations.

Deductions for personal use property

If the UAE property is used as a residence, mortgage interest is generally deductible, subject to the same limits that apply to U.S. homes. Interest on acquisition debt is capped at $750,000. Mortgage points are generally deductible.

Property t…