The Great Italian Financial Pivot: From Macro to Personal

You’ve likely been dreaming of the move to Italy for a while—the long lunches, the incredible history, and the slower pace of life. But before you get lost in visions of sipping an Aperol spritz in a Roman piazza, it's time to talk about the part of your move that’s a little less glamorous: your money.

Think of your financial journey not as a simple move, but as a strategy you should use. It's about shifting your mindset from the world you know to a new reality, where two tax systems and your own hidden biases can either work in your favour or create unexpected challenges.

The Dual Tax Dance: A Nuanced View - US expats in Italy

The first thing to understand is that as an American, you don't get to simply walk away from Uncle Sam. The U.S. is one of the only countries in the world that taxes its citizens on their income no matter where they live. So, you'll be a tax resident in Italy, but you'll still have to file a U.S. tax return every year.

This "dual tax dance" sounds intimidating, but there are mechanisms designed to reduce the risk of being taxed twice on the same income. The Foreign Earned Income Exclusion (FEIE) lets you exclude a significant portion of your foreign income from U.S. taxes (for 2025, that's up to $130,000). If you make more than that, or have other types of income, the Foreign Tax Credit allows you to use taxes paid to Italy as a dollar-for-dollar credit against your U.S. tax bill. 

Vincenzo and his team and the onclinetaxman.com do a great job explaining FEIE vs. Foreign Tax Credit in this article.

On the Italian side, the rules are simpler. If you live in Italy for more than 183 days in a calendar year, you’re considered a tax resident and will be taxed on your worldwide income. That means income from your side hustle, investments, or rental property back in the States is all on the table.

But here’s the sneaky part: the “phantom residency.” Italian tax residency isn't just about the number of days you spend in the country. If you set up roots by buying a house, opening a bank account, or enrolling your kids in school, you may be considered an Italian tax resident from day one, regardless of the 183-day rule. This is why many expats consider tax implications as part of their pre-move planning.

The Psychology of Your Money: Don't Let Biases Trip You Up

Moving to Italy is an emotional decision, and emotions can mess with our financial judgment. We all have cognitive biases that can influence our choices, and for an expat, these can be especially dangerous.

For example, anchoring bias might make you fixate on one piece of information, like a surprisingly cheap apartment you saw online in a small town. This "anchor" can trick you into thinking Italy is universally cheaper, causing you to overlook other high costs like utilities or expensive Italian gas. 

According to our friends at Mitos Relocation, the cost of living in Italy varies widely by region, with the South coming in roughly 30 to 40 percent cheaper than the North. Read their full review here. The “where to” relocate plays an important role in the living costs, and this is also true in Italy. Working with a relocation planner who provides structured guidance and coordination may help anticipate costs and avoid common challenges.

Another common pitfall is home bias, where you feel most comfortable keeping your investments in U.S. markets. This can create unexpected challenges. Many U.S. financial products, like certain mutual funds, can be taxed punitively in Italy. They could be reclassified and taxed as ordinary income, which may significantly reduce your after-tax returns. 

This is where a real financial pivot happens. It's not just about running the numbers, but about a shift in your mindset. For many expats, adapting to a new financial environment involves not just numbers, but also a shift in mindset. 

Before you make the leap, ask yourself these questions:

• Where do I plan to retire, the U.S. or Italy?

• What type of investments do I currently have?

• What investment approaches might fit my circumstances once I move?

• Is my existing investment portfolio compliant with both Italian/EU and U.S. regulations?   

• Is my portfolio paying for my living expenses?

• Am I going to work for an American or European company? 

• Will my employer offer a private pension plan? 

Answering these questions honestly is the first step toward a successful and financially sound relocation.

Keep Reading: Taxes, Homes, and Financial Planning

Understanding the dual tax system and your own money mindset is just the beginning. The next step is exploring the practical side of expat life in Italy. If your dream includes a home of your own, Buying Your Dream Home in Italy — From “Maybe” to “Mine!” walks you through the buying process, costs, and common pitfalls. For those thinking ahead to retirement and long-term wealth, The Pillars of Financial Planning dives into taxes, investments, and reporting rules every U.S. expat needs to know.

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