Taxes on Retirement Income

We are looking at living/retiring in Italy for a 'short' period of time (5-7 years) moving from the US.  I am reading articles relating to taxes - and they are a bit scary.  Our plan is to use the sale of our home (up to $250K is tax free according to US IRS rules) along with at least one Social Security Pension. 
If we are budgeting to spend around $40k annually to live in Italy, what 'income' is taxed?  Would it be the Social Security Pension and/or proceeds from the sale of our home?  I understand how/if the Social Security gets taxed as it is a form of pension (although I've read about Military, Social Security, etc. being taxed only through USA IRS rules - exempt from the Worldwide income rule).  My concern is that in the US, the proceeds from our home sale would not be taxed, but would it be subject to tax in Italy if we are to use it for living expenses?  Being able to access $250K without tax consequences is much different then potentially accessed 33-45%.

I realize that taxes is a complicated subject, but if there is a standard answer - it would be most helpful in determining what funds can/should be used or if the move is even feasible.

Thank you in advance.

In general (this is an opinion - I'm not a tax expert), the how and where you pay tax is decided on where you live, so once you become resident in one country, you are then liable under their regime.  Word of warning, tax-years sometimes differ from country to country.  What is important is whether there is a double-taxation agreement in place between the US and Italy; these agreements generally prevent you being taxed twice on the same income.  Generally, regardless of whether tax is charged, items that are assessed in one part of the agreement, shouldn't be assessed and charged in the other.

My advice is that if you have complicated tax-affairs that are forming part of the decision making process, go speak to a professional.

One last point, as a US citizen living abroad, you are still liable for filing IRS and State tax returns back home in the US.

Hello, I think you need professional advice. There aren't many who can give it. You could look at this   

They have offices in New York

Good luck


Your first hurdle is being approved for the elective residence visa.  The income levels required have gone up dramatically over the past 1.5 years.  The Italian consulates are now requiring a provable monthly income stream of $3,500 PER person (thus, $7,000 per couple), PLUS substantial savings. Unless you are somehow deriving a monthly income from the sale of your house, the proceeds will not be included as part of the monthly income stream that is now required, but will be considered as part of "substantial savings."  That level of income has been a heated topic between applicants and the consulates because requiring that level of income is ridiculous, but that is how it stands at the moment.  As far as taxes are concerned, Italy taxes one's worldwide income, including Social Security from the U.S.; U.S. social security is not exempt from taxation by Italy.  This is covered in the tax treaty (Article 18, section 2).  Other income includes interest, dividends, capital gains, income from rental property, etc. The only income not taxed is a pension derived from government-related work (social security is not government-related work).  In addition to income taxes on income, there are city and regional taxes, plus a wealth tax on any financial holdings (although I hear rumors that the wealth tax is no longer levied as of the the end of the 2016 tax year). I can not speak to real property held in the U.S. and Italian taxation.

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