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).

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    Not sure how italy is supposed t o be so special here, but this applies to germany and poland: THERE IS NOT VAT ON HOME PURCHASES. Normal homes are VAT excempt. What is not VAT excempt are associated costs (agent, notary etc.) but those are generally small compared to the home value. VAT is only extractable and applied for non-homes (i.e. business premises, storage etc.) but NOT long term accomodations. – TomTom May 5 '19 at 10:06
  • @TomTom in Germany, while thee is not VAT on Homes/Poperty, there is "Grunderwerbssteuer" - that is a tax on property purchases that is dependent on the ferderal state where the property is located an is between 3.5% and 6.5% – Daniel Apr 29 '20 at 12:10
  • Probably the Notary you will be signing the papework with knows those rules very well. Try to ask them – usr-local-ΕΨΗΕΛΩΝ Aug 27 '20 at 17:01

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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    Primary residences should not occur VAT on the sales price to start with, only on certain secodary costs (notary etc.). At least this is how it is handed in any other EU country I know of. – TomTom May 5 '19 at 10:07

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