People often ask me why I recommend living in Costa Rica, or any foreign country for that matter. There are a lot of Americans living in Costa Rica, both working there for multinational companies as well as a large retirement contingent. Living in a foreign country, whether in Costa Rica or elsewhere offers some serious advantages that many people don't even know about.
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If you are a US Citizen and you live and work in a foreign country (there are specific
rules that verify you live abroad), you likely qualify for both a foreign earned income allowance as well as a foreign housing allowance. This is huge. The foreign earned income allowance in tax year 2014 makes the first $99,200 of income tax free in the US. Imagine that. Sure you will likely have to pay tax in the country you are earning the money in but in Costa Rica, your tax obligation will likely be much lower than in the US. See IRS publication http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion -
Many US citizens living abroad are also eligible for a foreign housing allowance.
The housing exclusion applies only to amounts considered paid for with employer-provided amounts, which includes any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion). The housing deduction applies only to amounts paid for with self-employment earnings.
Your housing amount is the total of your housing expenses for the year minus the base housing amount. The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.
Housing expenses include your reasonable expenses actually paid or incurred for housing in a foreign country for you and (if they lived with you) for your spouse and dependents. Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion.
Housing expenses do not include expenses that are lavish or extravagant under the circumstances, the cost of buying property, purchased furniture or accessories, and improvements and other expenses that increase the value or appreciably prolong the life of your property.
You also cannot include in housing expenses the value of meals or lodging that you exclude from gross income (under the rules for the exclusion of meals and lodging), or that you deduct as moving expenses. see http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Housing-Exclusion-or-Deduction for more information
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Reduced tax payments. Another great advantage in living abroad is that in many countries, tax obligations are much lower than the US. In Costa Rica for example, property tax on Costa Rica real estate is ofter ten times less expensive than a similar property in the US. The "mill rate" or tax per thousand dollars in value in Costa Rica is $1.75 per thousand until a certain value threshold is met. That means that a $100,000 home would have an annual property tax bill of only $175.
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Freedom from Obamacare. Many baby boomers are not happy with Obamacare. Individuals with high net income may be paying excessive amounts for health insurance. In my personal situation, my wife and I are paying over $10,000 per year for health insurance under Obamacare and we each have an annual $10,000 deductible before our insurance is obligated to pay a claim. If you pass the bona-fide foreign resident test or physical presence test, you are exempt from Obamacare. Health insurance costs in Costa Rica, even after the recent increases in costs for expats, is still typically much less expensive than in the US.
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Many people find better career opportunities or the chance to earn more money living in a foreign country. Your skill set may be more desirable in a foreign country or you may get paid a premium as an foreign national. The wage scale may be higher in the country you have relocated to.
In conclusion living abroad may offer substantial savings or increased earnings. It also expands your horizons, offering a chance to see more of the world and oftentimes puts you geographically closer to many other countries. You may not realize but all of Europe would fit in a fairly small part of the US. In Costa Rica for example, you can drive to both Nicaragua and Panama in less than a day. You are also conveniently located to countries like Ecuador, Columbia, Cuba, Belize and a host of Caribbean nations. You'll also benefit from the cost of living in Costa Rica, where many items are less expensive than in the US. Many of us have had enough of the US and are itching to leave. Living abroad offers many a less expensive retirement option than in the US and helps stimulate our minds. More Americans than ever are living outside the US. You can always come back...