If you’re thinking of buying a home in another country…

Some well-off people are thinking of buying a vacation or retirement home abroad, now that the dollar is strong and the real estate market has become depressed in many parts of Europe and elsewhere.

If you’re considering such a move, be aware that the rules of real estate can be very different in other parts of the world.

For instance, some foreign countries don’t allow non-citizens to directly own real estate. As a result, you’ll have to own the real estate through a trust or a corporation, or have a local agent hold the title while you contract with him or her to control the property. The problem with owning real estate through a foreign trust or corporation is that it can result in onerous tax and reporting requirements here in the U.S.

Some people have the opposite problem: They want to own real estate through a trust or corporation, usually for asset-protection purposes, but this isn’t allowed by the foreign country.

Mortgage rules can be very different in other parts of the world. In much of the Caribbean, for instance, minimum down payments are typically 30% to 40%, and mortgages usually last 15 to 25 years, not 30. In calculating the ratio of your debt payments to your income, Caribbean banks often assume you will carry a credit card balance of 5% of your credit limit – even if you typically pay off the card in full each month.

In some parts of the world, virtually all mortgages have an adjustable rate, not a fixed rate.

The good news is that you can generally deduct interest payments on a foreign mortgage on your U.S. income taxes. But there are different potential tax problems. For instance, if you rent the property to others for part of the year, the lease could be considered a “foreign financial asset” and require you to fill out additional tax forms.

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