Understanding Real Estate Taxes for North American Expats in Costa Rica

Buying or selling property in Costa Rica can be exciting — but for North American expats, it often comes with confusion about taxes. Between U.S. reporting requirements and local Costa Rican rules, it’s easy to feel overwhelmed. This guide breaks down what truly matters so you can make informed decisions without the stress.

Buying Property Abroad: What You Should Know

Purchasing property overseas usually doesn’t trigger a U.S. tax filing by itself. What does matter is documentation. Keep every receipt, closing statement, and cost related to your purchase. You’ll need them later when you sell.

Foreign transactions don’t follow U.S. norms, so take time to understand Costa Rican property laws. Opening a local bank account is also smart — it simplifies paying utilities, HOA fees, and taxes. Just remember: foreign accounts may require FBAR reporting. Check with your tax advisor or the IRS website.

Transferring Funds and Paying the Down Payment

When wiring money to Costa Rica, pay attention to exchange rates and transfer fees. A down payment is a large transaction, and even small rate differences can cost you hundreds of dollars. Only some private banks will let you open a bank account after you prove the source of funds. Public banks offer a simplified account, with a max of $1,000/month, to pay utilities. Therefore, for any real estate transaction, I recommend using an escrow account.

Be aware of our money laundering laws that will require you to disclose the origin of the funds for any money transaction of over $10,000.

Mortgage interest and related fees are generally tax‑deductible on your U.S. return, even for foreign properties. Just convert all amounts to U.S. dollars using official IRS exchange rates.

Property Transfer Tax & Closing Costs

1. Property Transfer Tax (Impuesto de Traspaso)

1.5% of the higher of:

• the declared sale price, or

• the fiscal value registered with Hacienda.

Example: If the home sells for $300,000 → $4,500 transfer tax.

2. National Registry Stamp Duties (Timbres)

These are fixed percentages applied to the same taxable base.

• Fiscal Stamp (Timbre Fiscal): 0.2%

• National Archive Stamp: 0.005%

• Agrarian Stamp: 0.15%

• Bar Association Stamp: ¢750 flat

• Municipal Stamp: 0.2%

• Education Stamp: ¢20 flat

Total stamps: ~0.5% of the property value.

Example: $300,000 × 0.5% ≈ $1,500

3. Notary Fees (Legal Fees)

Set by law (Arancel de Honorarios). Standard real estate transfer fee: 1% of the property value.

This can be negotiated, but most notaries charge the official rate.

Example: $300,000 × 1% = $3,000

4. Additional Possible Costs

These vary depending on the transaction:

• Due diligence/title study: $300–$800

• Corporation transfer (if buying a company): $300–$600

• Power of attorney: $100–$200

• Certification of documents: $20–$50 each

• Survey updates (plano catastrado): $300–$600

• Municipal solvency letter: ¢0–¢10,000 depending on municipality

Total Typical Closing Cost for Buyer

Adding everything together:

• Transfer tax: 1.5%

• Stamps: ~0.5%

• Notary fee: 1%

Total: ~3% of the property value

For a $300,000 home, expect ~$9,000 in total closing costs.

Capital Gains Tax in Costa Rica

Costa Rica introduced a modern capital gains tax in 2019, and it applies to most real estate sales — including those by foreign owners.

How it works:

• The standard capital gains tax rate is 15% on the net gain.

• The gain is calculated as: Sale price – (original purchase price + documented improvements).

• Improvements must be officially invoiced in Costa Rica to count.

Important exceptions:

• If the property is your primary residence, the sale is exempt from capital gains tax in Costa Rica.

• If you purchased the property before July 1, 2019, you may choose a one‑time alternative calculation: Pay 2.25% of the sale price, regardless of gain. Many long‑term owners choose this option because it’s simple and often cheaper.

Why this matters for expats

Even though Costa Rica may tax your gain, you can usually apply those taxes toward your U.S. foreign tax credit, reducing your U.S. tax liability. This prevents double taxation — but only if you keep proper records.

Annual Property Tax

The municipality will not send you a monthly or annual bill; you're expected to know what, when, and where to pay. Property tax in Costa Rica is a flat 0.25% per year on the property’s registered municipal value, paid to the local municipality. Higher‑value homes may also owe an additional Luxury Home Tax, which applies when the construction value passes a government‑set threshold. The municipality will also charge you municipal taxes and trash collection.

Depending on the negotiation, the property transfer tax is either split 50/50 or paid by the buyer. 

There are many more details about the property tax. 

Luxury Home Tax

Costa Rica’s Luxury Home Tax is an annual progressive tax applied only when the construction value plus fixed installations exceeds ¢143,000,000. Once past that threshold, the tax is calculated in brackets ranging from 0.25% up to 0.55%, depending on the total taxable value.

Selling Property Abroad: The U.S. Tax Impact

Selling your Costa Rican home has a bigger impact on your U.S. taxes than buying it.

U.S. citizens must report any gain or loss from the sale. If the property was your primary residence for at least two of the past five years, you can exclude up to:

• $250,000 of profit (single)

• $500,000 (married)

If not, the full gain is subject to U.S. capital gains tax.

Foreign taxes paid in Costa Rica — including capital gains — may qualify for a foreign tax credit, reducing your U.S. liability. However, the gain itself is not considered earned income, so it doesn’t qualify for the Foreign Earned Income Exclusion (FEIE).

Currency exchange adds another twist: Any gain from paying off a foreign mortgage due to exchange rate changes is taxable in the U.S., while losses aren’t deductible.

A Quick Example

An expat buys a condo in Costa Rica for $250,000 and sells it four years later for $500,000. If she lived in the property for more than two years, she can exclude the entire gain under U.S. tax law.

In Costa Rica, she may owe capital gains tax — unless the condo was her primary residence, in which case it’s exempt. If she bought before July 1, 2019, she could choose the 2.25% alternative method instead.

Convert both purchase and sale amounts to U.S. dollars using the exchange rate on each transaction date.

Final Thoughts

Real estate taxes for expats aren’t impossible — they just require planning. Do your research, keep detailed records, and work with professionals who understand both U.S. and Costa Rican tax systems. Keep in mind 

Buying abroad should be exciting, not intimidating. With the right guidance, you can enjoy your Costa Rican property without worrying about tax surprises.

I am Ivo Henfling, a 37-year real estate veteran and widely regarded as Costa Rica's leading real estate authority, now with Coldwell Banker Santa Ana. Are you ready to purchase or sell one of the most beautiful Costa Rican homes now? Then contact us now.