I am a US permanent resident considering buying a property in Italy. This will entail a 10% VAT on the home value. Can I declare this as a tax credit or as a tax deduction for my US taxes? (Please note, this is VAT applied at the time of purchase, so it is a one-off tax, not a property tax, more akin to a sale tax).

This is a large transaction and the very best advice I can give you is to pay an expert for an expert opinion. Such as a tax lawyer with experience in tax implications of international property purchase.

My gut instinct is that VAT is not going to be a tax credit in the way that any income tax paid in Italy would be. Assuming you are buying the house to occupy as your primary residence, look into the tax code on irs.gov website regarding other deductions related to home buying and ownership, e.g. mortgage interest tax deductions, etc., and try to determine whether the codes say anything about where the house is located. If the only requirements are that you are a U.S. citizen and that you live in the house, well you may meet those requirements.

Again, due to the likely large amount of money involved, please do get professional help with this issue. Spending a couple thousand now to set things up right will be worth it in the long run. You might be able to get away with stealing from the mob, but the IRS always gets their money.

  • Interest and property taxes are deductible, wherever the house might be. I could not find anything about VAt – user Nov 30 '17 at 14:49
  • I lived in Belgium, Italy, and Germany on US government sponsored visa in each location. An agreement between US Gov't and the host nation addressed VAT, amongst other topics. I think we had the ability to recoup some VAT, but only on a limited set of items that we could purchase. E.g. household appliances and electronics. I never explored whether it covered buying a house. – Xalorous Nov 30 '17 at 14:58
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    You can recoup VAT for items you take back to the US. I find it hard to take the house back with me :) – user Dec 1 '17 at 0:54

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