A move to the United States brings forth a number of unique challenges. Where will I live? Does it make sense for my family join me? Where will my children go to school? Do I need private health insurance? A car? Understandably, U.S. taxes are generally an afterthought.

Unfortunately, if you will continue to maintain a retirement plan, real estate, or other investments abroad, U.S. tax rules can create a challenging landscape, littered with complications, even if the anticipated U.S. visit is short-term. To confound matters, these issues generally must be addressed prior to the move or planning around the adverse tax implications may not be possible.

While every situation is unique and working with an attorney or financial advisor with knowledge and experience serving clients from your home country is crucial, the following three U.S. tax tips should be considered by anyone contemplating a move to the United States:

1. Consider disposing of appreciated assets prior to establishing U.S. residency status – U.S. residency for tax purposes is determined either by immigration status or mere presence in the United States. Though several exceptions apply, a foreign national who spends more than 183 days in the United States may be classified as a U.S. resident, subject to tax on their worldwide income – not just the income received in the United States.

For U.S. purposes, capital assets will be taxed and gain figured based on residency status as of the date of sale. This would mean that if you have owned real estate abroad for twenty years and sell it one day after having established U.S. residency status, gain would be fully taxable in the United States – even if fully attributable to the period of time prior to your move!

2. Make sure that you understand the U.S. tax treatment and reporting requirements applicable to non-U.S. retirement plans – Foreign retirement arrangements generally will not qualify for the same tax deferral benefit available to U.S. qualified plans. Someone immigrating to the United States will want to seriously consider the utility of maintaining retirement assets overseas. First of all, your ability to continue contributing to the non-U.S. plan will be greatly limited. Secondly, foreign retirement plans will likely be subject to tedious U.S. tax reporting obligations and, for certain types of plans, undistributed earnings at the plan-level will be taxed currently in the United States, creating a tax liability from income you are note even able to access.

Closing out of a foreign retirement plan may seem the right choice, particularly when a move to the U.S. is permanent or indefinite. Nevertheless, foreign law may limit the ability to access retirement funds prior to reaching a certain age. In such a scenario, understanding the applicable U.S. tax rules will be a crucial detail of your financial planning landscape.

3. Determine the cost of selling any foreign mutual fund investments – Foreign mutual funds and similar pooled investments will be classified as passive foreign investment company (PFIC) holdings for U.S. tax purposes. Additional taxes, penalties, interest, and costly compliance fees render these investments toxic from the moment you become an American taxpayer. If you expect to keep your U.S. residency status for any considerable period of time, continuing to maintain this type of investment makes sense in only a handful of circumstances.Exactly what strategy should be taken to change an investment position in foreign mutual funds will largely depend on market conditions, your personal financial goals, and your expected length of stay in the United States. Regardless, the punitive U.S. taxes and penalties assessed against foreign mutual funds will begin to accrue as soon as U.S. residency status is obtained.

Developing a pre-immigration tax plan requires you to take a long-term view of your situation and consider a number of important factors. The plan must account for:

1. Potential tax liabilities of recommended transactions;
2. Continued reporting and tax burdens in your home country of nationality following the move;
3. Current and future market conditions;
4. Current and future currency exchange conditions; and
5. Your personal and financial goals.

If you are preparing for a long-term work assignment in the United States or are in the process of obtaining lawful permanent residency status, contact the attorneys at Expat Legal Services Group to develop a pre-immigration tax plan that will allow you to avoid unnecessary economic challenges.