Three things make Panama stand out for US buyers: the USD basis (no FX adjustment to track over the holding period), the absence of a comprehensive US-Panama income tax treaty (just a 2010 TIEA for information exchange), and Panama’s territorial tax system — non-Panamanian-source income is exempt from Panamanian tax for both individuals and Panamanian corporations. The territorial system is what makes Panama a residence-and-banking jurisdiction for many international families.
The numbers that drive your US-side math:
- 10% Panamanian tax on the gain at sale, or a 3% prepayment (instead of filing on the actual gain, you can prepay 3% of the higher of the sale price and the cadastral value and keep it as the final tax).[Panamá, Ley 208 de 6 de abril de 2021, Art. 7 (Código Fiscal Art. 701, literal a): 10% on the gain, or a 3% advance on the higher of the sale price and the cadastral value that the seller may treat as the final tax; the payment receipt must appear in the deed for registration, 2026-10]
- 12.5% Panamanian rental tax for non-residents (lower than US marginal rates for most filers — typically leaves residual US tax owed after the foreign tax credit).
- Form 5471 trap on S.A. and Fundación de Interés Privado holding structures — common Panamanian default, $10,000 USD/year minimum penalty for non-filing, and the Fundación classification (trust vs. corporation) carries its own US-side analysis (potentially Form 3520/3520-A).
The standard framework runs alongside: purchase non-taxable in the US (USD basis), FBAR and Form 8938 on associated bank accounts, FTC reconciling rental income.
What’s not taxable: the purchase itself
A US buyer of Panamanian property does not owe US tax on the purchase. The acquisition is a non-taxable event for US purposes — the buyer’s cost basis is established at the purchase price plus closing costs. Because Panama uses USD as its de facto currency and most transactions settle in USD, the basis calculation is straightforward — the USD amount of the all-in cost is the basis.[IRS, basis rules for foreign real estate (Publication 551, Basis of Assets), 2026-04]
Panama’s transfer tax (2% of higher of sale price or cadastral value) is not a US tax and does not generate a foreign tax credit at purchase. The seller normally files and pays it;[Dirección General de Ingresos (MEF Panamá), Preguntas frecuentes: Inmueble (forms 106 transfer tax and 107 capital gain are filed by the seller), 2026-09] if your contract shifts it to you, it is treated for US purposes as a cost of acquisition added to basis, similar to US state-level transfer taxes.
For a $400,000 USD purchase with $20,000 USD in one-time closing costs (an illustrative figure), the US basis is $420,000 USD — no FX conversion required, no FX adjustment to track over the holding period.
Annual reporting: FBAR and Form 8938
US persons who hold property in Panama through a corporate entity (a Panamanian Sociedad Anónima or Fundación de Interés Privado — common holding patterns) or who maintain Panamanian bank accounts to handle property carrying costs may have annual reporting obligations even before the property generates any income.
FBAR (FinCEN Form 114) is required of any US person with financial interest in or signature authority over one or more foreign financial accounts with aggregate value exceeding $10,000 USD at any time during the year.[US Treasury FinCEN, Report of Foreign Bank and Financial Accounts (FBAR), 2026-04] The threshold is aggregate — Panamanian USD-denominated bank accounts contribute to the threshold along with any other foreign accounts.
Form 8938 is required of US persons with specified foreign financial assets above thresholds varying by filing status and residency. For an unmarried US person filing from the US, the threshold is $50,000 USD at year-end or $75,000 USD at any point. For married filing jointly from US, $100,000 USD and $150,000 USD.[IRS, Form 8938 reporting thresholds and filing requirements, 2026-04]
Panamanian corporate holding structures add complexity. When property is held through a Panamanian Sociedad Anónima (SA) or Fundación de Interés Privado, the entity itself may be reportable as a foreign corporation (Form 5471) if the US person holds 10%+ ownership or is an officer/director. The corporate-holding structure is common in Panama — the SA structure is widely used for asset-protection and estate-planning purposes. Form 5471 has substantial reporting depth and meaningful penalties for non-filing ($10,000 USD per form per year minimum).[IRS, Form 5471 reporting requirements for US persons with foreign corporate holdings, 2026-04]
The Fundación de Interés Privado is a particular Panamanian structure that may be treated as a trust or as a corporation for US tax purposes depending on the specific structure — engage US tax counsel familiar with Panama Fundación classification before establishing or acquiring property held through one.
For property held in personal name (the simpler structure), Form 5471 does not apply — only FBAR and Form 8938 on the associated bank accounts.
The absence of a comprehensive US-Panama income tax treaty
Most US-foreign-property tax planning starts from the assumption of a comprehensive income tax treaty between the US and the foreign country (the US has 60+ such treaties). Panama is one of the exceptions — the US and Panama have a Tax Information Exchange Agreement (TIEA) signed in 2010 but no comprehensive income tax treaty.[US Treasury, US-Panama Tax Information Exchange Agreement (TIEA, 2010), 2026-04]
Practical implications for US buyers:
Foreign tax credit: still available through US domestic-law mechanisms (Form 1116). The TIEA does not provide treaty-based relief on double-taxation, but the unilateral US foreign tax credit operates regardless of treaty status. Panamanian income tax paid generates Form 1116 credit against US tax owed on the same income.
Withholding rate reductions: many treaty-country scenarios provide reduced withholding rates on dividends, interest, royalties, etc. through treaty provisions. The US-Panama TIEA does not include those reduced-withholding provisions. For Panamanian-source income (rental income, capital gains, etc.), Panama’s standard non-resident withholding rates apply without treaty-based reduction.
Information exchange: the TIEA provides for information exchange between US and Panamanian tax authorities. US persons holding Panamanian financial accounts and property should expect that Panamanian authorities can share information with the IRS upon request, and vice versa. Compliance with both countries’ reporting requirements is essential.
Treaty-tiebreaker for tax residency: many comprehensive treaties include tiebreaker rules for individuals who would otherwise be tax residents of both countries. The US-Panama TIEA does not include those tiebreakers. US persons who become Panamanian tax residents (e.g., through Pensionado residency plus 183+ days physical presence) may face dual tax-residency complexity that treaty-tiebreaker rules would otherwise resolve.
For most US-buyer scenarios — property held in personal name, occasional rental, eventual sale — the absence of treaty does not produce dramatic differences vs. treaty-country scenarios. The foreign tax credit operates similarly, the FBAR and Form 8938 obligations are unchanged, and the Section 121 framework applies as in any foreign-property scenario. The differences become more material for buyers with complex structures, dual tax-residency scenarios, or Panamanian-source income flows that would otherwise benefit from treaty provisions.
Rental income: reportable in both countries
US persons who rent out their Panamanian property — long-term lease or short-term vacation rental — owe Panamanian income tax on the rental income (12.5% non-resident rate or progressive resident rates) and US federal income tax on the same income reported on Schedule E of Form 1040.[DGI, rental income tax framework for foreign property owners, 2026-04]
The double exposure is reconciled through the Foreign Tax Credit (Form 1116), which credits Panamanian income tax paid against US tax owed on the same income, dollar for dollar, up to the US tax that would have been owed.[IRS, Foreign Tax Credit (Publication 514), 2026-04]
In practice, Panama’s 12.5% non-resident rental rate is meaningfully lower than US marginal rates for most filers — the foreign tax credit covers the Panamanian tax fully, with residual US tax owed (US tax exceeds foreign tax). For lower-income filers, the credit may fully cover with no residual US tax.
Depreciation: US persons depreciating Panamanian rental property under Section 168 use the 30-year recovery period for foreign residential rental real estate, vs. the 27.5-year period for US residential rental.[IRS, alternative depreciation system for foreign-use property under Section 168(g), 2026-04] The slower depreciation reduces annual deductions and can leave the US person with positive net rental income for US purposes even when the Panamanian-tax-basis income is closer to break-even.
For STR-specific buyers (Casco Viejo, Boquete, Pacific coast areas), the depreciation gap and the FTC calculation become the primary tax-planning considerations.
Sale: capital gains in both countries
When a US person sells Panamanian property, the gain is taxable in Panama (10% of the gain, or a 3% prepayment on the sale price or the cadastral value, whichever is higher that can stand as the final tax)[Panamá, Ley 208 de 6 de abril de 2021, Art. 7 (Código Fiscal Art. 701, literal a): 10% on the gain, or a 3% advance on the higher of the sale price and the cadastral value that the seller may treat as the final tax; the payment receipt must appear in the deed for registration, 2026-10] and in the US (capital gains on Schedule D / Form 8949).
The Panamanian 10% rate is generally applied to the gain calculated under Panamanian rules (registered sale price minus registered acquisition cost minus deductible expenses). Panama does not apply inflation indexing to the gain calculation. The 10% rate applies to most residential foreign-owner transactions.[DGI, capital gains tax framework on real estate sales, 2026-04]
How Panama collects it: before the deed is registered, the seller either files a sworn return and pays 10% of the actual gain, or prepays 3% of the higher of the sale price and the cadastral value. The seller can keep that 3% as the final tax. If it is more than 10% of the gain (a small gain relative to the price), the seller can file a sworn return and take the excess back as a refund or a credit against other DGI taxes. Nothing requires topping the 3% up to 10%.[Panamá, Ley 208 de 6 de abril de 2021, Art. 7 (Código Fiscal Art. 701, literal a): 10% on the gain, or a 3% advance on the higher of the sale price and the cadastral value that the seller may treat as the final tax; the payment receipt must appear in the deed for registration, 2026-10]
The US capital gain is calculated on the dollar basis: cost basis equals the original USD purchase price plus closing costs and capital improvements, sale price equals the USD sale price. Because Panama uses USD throughout, no FX adjustment is required — substantially simpler than Mexican peso, Costa Rican colón, or Portuguese euro scenarios.
The foreign tax credit applies to the Panamanian capital gains tax against the US capital gains tax. Because the Panamanian rate (10%) is meaningfully below the US long-term capital gains rate (15-20% federal, plus 3.8% NIIT for higher-income filers), the Panamanian tax does not fully cover the US tax — most US sellers find residual US tax owed after the Panamanian credit.
Section 121 exclusion
US homeowners are familiar with the Section 121 exclusion: up to $250,000 USD (single) or $500,000 USD (married) of capital gain on the sale of a primary residence excluded from US income tax. The exclusion is available on foreign-situs property if the standard requirements are met: the property must have been owned and used as the seller’s primary residence for at least two of the five years preceding the sale.[IRS, Section 121 exclusion of gain from sale of principal residence (Publication 523), 2026-04]
For US persons who have moved to Panama under Pensionado residency, established Panamanian residence as their primary residence, and lived there for at least two years, Section 121 can shelter substantial capital gain on sale. For US persons who maintained their primary residence in the US and used the Panamanian property as a second home or rental, Section 121 does not apply.
Estate and gift tax
US persons gifting Panamanian property during life or transferring it on death face the standard US estate and gift tax framework, which applies to the worldwide estate of US persons regardless of where the property is located.[IRS, US estate tax on worldwide assets of US persons (Publication 559), 2026-04]
For 2026, the US basic exclusion amount for estate and gift tax is $15,000,000 USD per person. Public Law 119-21, signed July 4, 2025, set that figure. The gift tax annual exclusion is $19,000 USD per recipient.[IRS, What's new — Estate and gift tax (2026 basic exclusion amount USD 15,000,000; 2026 annual exclusion USD 19,000 per donee), 2026-10] So most US-person estates with Panamanian property under $5,000,000 USD in total worldwide net worth are not in estate-tax-exposure territory.
Panama does not impose an estate tax on the property at death. The heir’s path to title transfer involves either a Panamanian will (if executed) or a more involved succession proceeding using the home-country will. As covered on /panama/how-to-buy-property/, foreign buyers should consider executing a Panamanian will covering the Panamanian-situs property within the first year of ownership.
What a typical filing year looks like
For a US person who owns a Panamanian condo (held in personal name), maintains a Panamanian bank account for property carrying costs, and rents the property occasionally on STR platforms, a representative annual filing package looks like:
- Form 1040 with Schedule E for rental income and expenses
- Form 1116 for foreign tax credit on Panamanian rental tax paid
- FinCEN Form 114 (FBAR) for the Panamanian bank account if it crossed the $10,000 USD aggregate threshold
- Form 8938 if specified foreign financial assets crossed the applicable threshold
- Schedule B for interest from the Panamanian account
- Form 4562 for depreciation of the rental portion of the property (if applicable)
For property held via a Panamanian corporate entity (SA or Fundación), the package additionally includes:
- Form 5471 if the US person is a 10%+ shareholder or officer/director (SA)
- Form 3520/3520-A may apply if the Fundación is classified as a foreign trust for US purposes
A buyer who does not rent the property, holds only modest Panamanian USD balances, and holds property in personal name has a light incremental compliance burden. A buyer running a meaningful STR operation in Panama with a corporate-holding structure has a meaningful tax preparation cost, typically $1,500 USD-$4,000 USD per year for cross-border-competent preparation.[Greenback Tax Services, fee schedules for US expat and foreign-property tax preparation, 2026-04]
Where buyers commonly stumble
Three recurring failure modes:
Defaulting to Fundación or SA holding without understanding US tax classification. Panamanian attorneys may recommend Fundación or SA holding by default. The US tax classification of the Fundación specifically can be uncertain — engage US tax counsel familiar with Panama structures before establishing one. The reporting requirements (Form 5471, possibly Form 3520/3520-A) and ongoing compliance costs can be substantial.
Missing FBAR. Standard cross-border-buyer mistake. A Panamanian USD-denominated checking account counts as a “foreign financial account.” The threshold (aggregate $10,000 USD at any point) is easy to cross with property carrying costs.
Underestimating the Panamanian tax due at sale. The tax is paid before the deed can be registered (the receipt has to appear in the deed), so either 10% of the gain or the 3% prepayment comes out of your sale proceeds around closing.[Panamá, Ley 208 de 6 de abril de 2021, Art. 7 (Código Fiscal Art. 701, literal a): 10% on the gain, or a 3% advance on the higher of the sale price and the cadastral value that the seller may treat as the final tax; the payment receipt must appear in the deed for registration, 2026-10] Plan cash flow at sale for it, and for the refund filing if the 3% is more than 10% of your gain.
For broader country context, see /panama/. For Panama-side closing mechanics and ongoing carrying-cost framework, see /panama/how-to-buy-property/. For the parallel Canadian-side framework, see /panama/taxes-canadian-buyers/.
Disclaimer
This article is for informational purposes only and does not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified cross-border tax advisor before making decisions based on this information. CrossingHQ does not provide tax preparation, advice, or representation services.
Current as of 2026-07-10. We review tax content quarterly and update on rule changes. To report an error, contact us.