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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

http://www.euitalianinternationaltax.com/   

They have offices in New York


Good luck

Olivia

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