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How Will Obtaining Italian Dual Citizenship Affect My Taxes?
One common question that arises when people are interested in applying for Italian dual citizenship is how this status could affect their taxes. The thing to remember is most people who have USA-Italy dual citizenship apply for their dual status here in the United States through the Italian consulate.
Since they have not taken up residence in Italy and, instead, remain living in the United States as their primary residence, there are no immediate tax implications. As such, there is no need to file a tax return in both the United States and Italy. Rather, you continue to file your annual tax return in the United States.
However, certain situations could affect your taxes that you do need to be aware of. The first one is if you are living in Italy for more than 183 days per calendar year. A calendar year begins on January 1st and ends on December 31st.
This cut-off is essential to know whether you will pay taxes just in the United States or also in Italy. If you remain in Italy beyond 183 days, you will need to file a tax return in both countries.
You will have to report your worldwide income earned for the tax year. You are allowed to deduct the taxes you paid in one country from the other country’s tax return. This is done to avoid double taxing you for the income you already paid taxes on in one country.
However, there are exceptions, such as when you earn income in the United States and Italy exclusively. In this example, you would pay taxes on your U.S. income on your U.S. return and taxes on your Italian income on your Italian tax return. Yet, you would need to claim the total amount earned in both countries on both returns.
We know this can seem confusing, especially for people who recently received their Italian dual citizenship. The easiest way to remember what tax returns you need to file is to ask the following:
- Did I earn income in both the U.S. and Italy?
- Did I live in Italy for more than 183 days?
- Do I have investment rental properties in Italy?
- Do I own or have part ownership in a business in Italy that I earn income from?
If you answered yes to any of the above questions, then you must file a return in both countries. Keep in mind, these are general examples. It is best to consult with a tax return professional with expertise in U.S. and Italian tax laws.
What About Real Estate I Own in Italy?
Real estate will generally fall into one or two categories: residential and investment. If you have a summer home in Italy, you will have to pay property taxes in Italy but not income taxes because you are not earning income from the home.
On the other hand, if you rent out your summer home for the rest of the year, then this is considered an investment property. In this instance, you would pay Italian property taxes and income taxes since the property is earning income.
What if I Retire to Italy? How Is My Retirement Income Taxed?
If you decide to retire to Italy and live out your Golden Years, you still need to file a tax return in the U.S. and Italy. You would file your Italian tax return first and pay taxes on your retirement income to Italy. When you file your U.S. return, you would deduct the taxes already paid to Italy and not have to pay taxes on the retirement income a second time.
As you can see, obtaining Italian dual citizenship does not always require you to pay taxes in both the U.S. and Italy. Yet, you still get to enjoy the benefits of being an Italian citizen.
To find out more about applying for dual citizenship in Italy and, if you qualify, please feel free to contact the Italian American Citizenship Assistance Program at (305) 812-5512 for a FREE telephone consultation today!