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Will I have to pay the Capital Gains Tax on Foreign Real Estate if I sell it?

IJ ZemelmanFeb-20-2015

Have you recently sold or are you planning on selling foreign property?  Learn about how the capital gains from selling foreign property will affect your US expat tax return.

If you are a US Expat living and working overseas, the chance is high that you will wind up selling foreign property.  When you sell property (whether in the United States or in a foreign country), you will be responsible for capital gains taxes.  There are some additional steps you need to take when calculating the capital gains tax you owe to the United States for property sold in a foreign territory.

You will report capital gains on Schedule D.  Exchange rates will come into play after you sell foreign property.

In order to accurately calculate your amount of loss or gain from selling foreign property, you need to look up the exchange rate active at the time you purchased the property and the exchange rate for the time in which the property was sold.  Everything needs to be converted to USD (US Dollars).

If the foreign property you sold was your primary residence, you will be able to deduct up to $250K in gains.

If you lived at the foreign property you sold for at least 2 years out of the previous 5 years, it is considered to be your primary residence.  When you sell your primary residence, you qualify to take a deduction of $250k from any gains you had on the sale of property.  If you are married, this amount doubles for a total available deduction of $500K.

If your foreign property did not qualify as a primary residence, you will be subject to the standard capital gains tax rates.

If the foreign property you sold is regarded by the IRS as an investment property, you will need to pay the standard capital gains tax rate without any deductions. 

This information only applies to your US expat tax return.  You may be liable for local taxes in your host country – in which case, you may qualify to reduce your US capital gains tax liability by claiming the Foreign Tax Credit.

If you are subject to capital gains taxes in the foreign country in which you reside, you may be able to offset your US capital gains tax liability by claiming a dollar-for-dollar deduction using the Foreign Tax Credit.  If you need help calculating your amount of capital gains or losses, you are encouraged to seek the assistance of a qualified US expat tax professional.