Taxes for American Expatriates in Costa Rica for 2025

Dual declaration, current benefits and possible reforms

1- Obligation to declare to the IRS

Every U.S. citizen is required to file Form 1040 if they exceed the following annual gross income thresholds for tax year 2024 :

• Singles: $14,600

• Married filing jointly: $29,200

• Head of household: $21,900

The return must include all global income , regardless of where it was generated. This applies to income from employment, professional income, pensions, or investments .

2- Tools to avoid double taxation

Taxpayers can access two main mechanisms to avoid paying taxes twice on the same income:

• Foreign Earned Income Exclusion (Form 2555) Allows you to exclude up to $126,500 if you legally resided in Costa Rica or if you stayed outside the U.S. for at least 330 days within a 12-month period.

• Foreign Tax Credit (Form 1116) If you have already paid taxes in Costa Rica on the same income, you can credit the amount paid to the IRS , reducing or eliminating the federal tax payable.

✅ These mechanisms can be used separately or in combination , depending on the type and source of income.

3- Reports of accounts and financial assets

Regardless of whether there are taxes payable, there are reporting obligations for holding assets or accounts abroad :

• FBAR (FinCEN Form 114) Required if total foreign bank accounts exceed $10,000 at any time during the year.

• FATCA (Form 8938) Required if the value of non-U.S. financial assets exceeds $200,000 at the end of the year (for single individuals living abroad) or $400,000 for couples filing jointly.

📌 Both must be filed with the IRS or the Treasury Department, as appropriate, and failure to do so can result in severe penalties .

4- Taxation in Costa Rica

Costa Rica applies a territorial tax system . This means that only income generated within the country is taxed. The implications for expatriates are:

• If you receive income from services, rentals, or businesses located in Costa Rica , you must declare and pay taxes according to local rules.

• If you receive income from abroad (pensions, investments, etc.) , you are not required to declare that income to the Treasury.

• If you operate a business or issue invoices , you must comply with formal obligations such as VAT, monthly and annual declarations , and eventually withholdings for remittances abroad if applicable.

5- Tax reforms under discussion

During the 2024 presidential campaign, Donald Trump proposed eliminating citizenship-based taxation , replacing it with a residency- based model. If implemented, American citizens permanently residing abroad would no longer be required to file and pay federal taxes in the U.S.

📌 As of April 2025, this proposal has not been transformed into legislation or officially introduced in Congress, although some sectors of the Republican Party maintain it as part of their agenda. For now, it is an initiative under discussion, with no concrete effects .

📊 Summary table – Declarations and key dates for 2025

*Non-U.S. residents have an automatic two-month extension to file, but not to pay . The tax must be paid by April 15 to avoid late fees. A maximum extension is available until October 15 , subject to prior authorization.

Final reflection

For U.S. citizens residing in Costa Rica, tax compliance remains a complex but manageable reality . The key is understanding what to report, when to do so, and how to take advantage of the legal mechanisms available to avoid overpaying .

Since the tax landscape can change—particularly if reforms materialize in the U.S.—it's a good idea to stay informed and work with advisors who understand both the U.S. and Costa Rican systems . Sound tax planning protects assets, provides peace of mind, and avoids unnecessary penalties .