By Antonio Rodriguez (US Tax Consultants)

Form 1040 and FBAR for U.S. Persons Residing in Spain: Cross‑Border U.S. Tax Implications and Coordination with Spanish Fiscal Obligations

U.S. citizens, Green Card holders, and other U.S. persons are taxed by the United States on worldwide income and must file Form 1040 annually—regardless of residence. They may also need to file the FBAR (FinCEN Form 114) and FATCA Form 8938 to disclose foreign accounts and assets. At the same time, a Spanish tax resident must file IRPF (Modelo 100) and, where applicable, Modelo 720 (foreign assets) and Modelo 721 (virtual currencies abroad). Coordinating both systems—U.S. and Spain—is essential to avoid double taxation, penalties, and information mismatches

Who is a “U.S. Person” and Why It Matters

For U.S. tax purposes, a U.S. person includes U.S. citizens, resident aliens, and certain domestic entities (corporations, partnerships, trusts, estates). This classification drives filing obligations (Form 1040, FBAR, FATCA), even if the person lives permanently in Spain.

Residency in Spain does not remove U.S. filing requirements; it changes how you coordinate the two jurisdictions.

U.S. Return: Form 1040 and Double‑Tax Relief

All U.S. persons report global income on Form 1040. Two principal relief mechanisms mitigate double taxation:

• Foreign Earned Income Exclusion (FEIE – Form 2555). To qualify, the taxpayer must meet the tax home requirement and either the Bona Fide Residence or Physical Presence (330 full days/12 months) test. The FEIE is inflation‑indexed (e.g., $130,000 for 2025 per the current instructions).
• Foreign Tax Credit (FTC – Form 1116). Credits Spanish income tax against U.S. liability; rules, categories (“baskets”), and carryovers are detailed in the instructions and IRS guidance. Often the preferred option in high‑tax Spain.

The bilateral Income Tax Treaty U.S.–Spain allocates taxing rights and includes the classic saving clause preserving the U.S. right to tax its citizens per domestic law. Technical explanations and the 2013 protocol provide operative detail.

Many Spain‑resident Americans use Form 1116 rather than FEIE, preserving access to U.S. credits and avoiding FEIE interactions (e.g., limits on credits for excluded income). Coordinate with the Spanish return to substantiate foreign taxes claimed.

US Tax Consultants has published an White paper on this issue, please, do not hesitate to download it for free from our website.

Treasury Disclosure: FBAR (FinCEN Form 114)

When required. File FBAR if the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the year. This is a Bank Secrecy Act requirement, submitted electronically to FinCEN (not the IRS). Annual due date is April 15 with an automatic extension to October 15.

Use the maximum account value during the year; convert non‑USD balances using U.S. Treasury year‑end exchange rates per FinCEN guidance.

Common traps. Failing to aggregate joint, business, or signature‑authority accounts; relying only on year‑end balances (instead of the highest point at any time).

IRS Asset Disclosure: FATCA Form 8938

Many Spain‑resident Americans must attach Form 8938 to Form 1040 when specified foreign financial assets exceed thresholds. For taxpayers living outside the U.S., typical thresholds are $200,000 year‑end / $300,000 at any time (single), and $400,000 / $600,000 (married filing jointly). Higher than FBAR; the forms are separate and often both required.

Spanish Obligations: IRPF (Modelo 100) and Informational Models

• IRPF (Modelo 100). Spain taxes worldwide income for tax residents; careful category‑by‑category alignment (general vs. savings base) is crucial when later computing the U.S. FTC on Form 1116. (Use Spanish assessments and payment proofs in your U.S. workpapers.)
• Modelo 720 (foreign assets and rights): report foreign accounts, securities/insurance, and real estate when each block’s aggregate value exceeds €50,000; initial filing and re‑filing rules are time‑bounded. Electronic filing via AEAT; deadline Jan 1–Mar 31 following the tax year.
• Modelo 721 (virtual currencies abroad): stand‑alone declaration for crypto held with foreign custodians/exchanges; broadly mirrors 720 thresholds (€50,000 initial; €20,000 increase triggers later filings). Same filing window (Jan 1–Mar 31).

These Spanish models are informational—they do not levy tax themselves—but they provide cross‑checks against the IRPF and against data exchanged under international cooperation.

Cross‑Border Frictions and Technical Pitfalls

a) Spanish collective investments = PFICs under U.S. law

Many non‑U.S. mutual funds/ETFs (including Spanish UCITS and SICAVs) are treated as PFICs, triggering Form 8621 reporting and complex tax regimes (default “excess distribution”, or elections such as QEF / Mark‑to‑Market). This area can be punitive if mishandled.

b) Spanish private pensions and insurance with savings components

These may require reporting on Form 8938 and may be taxable annually for U.S. purposes (they are generally not U.S.‑qualified plans), so plan your FTC strategy accordingly. (See FATCA overview and Form 8938 thresholds.)

c) Information matching and audit risk

FATCA bank reporting, FBAR, and Spanish Modelos 720/721 create multiple data streams. Ensuring consistency across Form 1040, Schedule B/8938, FBAR, Modelo 100, 720/721 is vital to avoid notices or audits in either country.

Practical Coordination: A Step‑by‑Step Workflow

1. Prepare the Spanish return first (IRPF). Determine taxable bases, final tax due/paid, and retain official proofs—then map these to Form 1116 categories.
2. Compile account data for FBAR. Capture maximum balances (not just 31‑Dec) and Treasury FX conversions for non‑USD accounts.
3. Assess FATCA Form 8938. Aggregate specified foreign financial assets against the expat thresholds and complete disclosures consistent with Schedule B answers.
4. Review Modelos 720/721. Test block thresholds (€50,000) and repeat‑filing rules (€20,000 increase); file electronically Jan–Mar.
5. PFIC screening. Identify non‑U.S. funds/ETFs and, if needed, complete Form 8621 and choose the least punitive regime.
6. Treaty check. Apply the U.S.–Spain Treaty (and saving clause implications) for pensions, interest, dividends, royalties where relevant.

Common Mistakes (and How to Avoid Them)

• Ignoring the FBAR $10,000 aggregate rule because individual accounts are “small.” FBAR is triggered by the combined maximum value at any time.
• Reporting only year‑end balances on FBAR. You must report the maximum during the year; use Treasury FX rates to convert.
• Confusing FBAR and Form 8938. Distinct agencies, thresholds, and filings; many taxpayers must file both.
• Missing Spanish informational models (720/721) because “they do not tax.” They still carry penalties and are used for cross‑checks.
• Holding PFICs unknowingly (e.g., Spanish mutual funds) without Form 8621. This can snowball into punitive U.S. taxation if not managed.

How US Tax Consultants Supports U.S. Expats in Spain

US Tax Consultants delivers integrated, end‑to‑end preparation across both jurisdictions —the United States and Spain— so you file once, correctly, and consistently:

• Integrated preparation of Form 1040 (all schedules), FBAR (FinCEN 114), Form 8938, Form 1116/2555, plus Spain’s IRPF (Modelo 100) and Modelos 720/721—all reconciled to avoid cross‑filing inconsistencies. (We align FBAR maxima and FATCA asset values with 720/721 block totals and Spanish bank proofs.)
• PFIC expertise. We identify and manage Spanish/European funds under PFIC rules (Form 8621) and design mitigation strategies (QEF/MTM elections where feasible) to minimize U.S. tax friction while maintaining Spanish compliance.
• Treaty & FTC optimization. We apply the U.S.–Spain Treaty and maximize Foreign Tax Credits to neutralize double taxation—coordinating documentation flow from IRPF to Form 1116.
• Process clarity and peace of mind. Checklists, secure document exchange, transparent pricing, and a single team accountable for the full cross‑border picture.

Final Thoughts

For American taxpayers living in Spain, tax compliance is dual‑track and data‑intensive. The key is consistency: your U.S. return (1040 + FBAR/FATCA) and your Spanish filings (IRPF + 720/721) should tell the same story. Align documentation, choose the right double‑tax relief (FEIE vs. FTC), and scrutinize investment structures (PFICs). With an integrated approach—and an advisor fluent in both systems—you can minimize global tax exposure and sleep well.

For more information or to schedule a free, no‑obligation consultation:
US Tax Consultants — Tel: +34 915 194 392
Book an appointment online (free): https://outlook.office365.com/book/USTaxConsultants1@ustaxconsultants.net/?ismsaljsauthenabled=true

Quick Reference (Cheat‑Sheet)

• Form 1040 — annual U.S. return; worldwide income; coordinate with Spain.
  Relief: FEIE (Form 2555) and FTC (Form 1116).
• FBAR (FinCEN 114) — file if foreign accounts > $10,000 aggregate any time; due Apr 15, automatic extension to Oct 15.
• FATCA Form 8938 — attach to 1040; expat thresholds typically $200k/$300k (single) and $400k/$600k (MFJ).
• Spain: IRPF (Modelo 100); informatives Modelo 720 (accounts/securities/real estate) and Modelo 721 (crypto with foreign custodians); Jan–Mar filing.
• Treaty: U.S.–Spain saving clause applies; use FTC to relieve double taxation.
• PFIC (Form 8621): common with Spanish funds/ETFs—plan ahead.