Foreign capital gains taxation

Yes — US citizens and resident aliens are taxed on worldwide capital gains, so selling foreign property is reportable on your US return exactly like a domestic sale, regardless of where the property sits. If the country where the property is located also taxes the gain, the Foreign Tax Credit (Form 1116) is generally the tool that prevents the same gain from being taxed twice, though the credit has its own limitations and doesn't always eliminate US tax entirely, especially when foreign rates are lower than US rates. See the full capital gains tax on foreign property guide for how the calculation and credit actually work together.

Your basis is the property's fair market value on the date of the previous owner's death, not what they originally paid for it — so the taxable gain is only the appreciation that happens after you inherit it, not any appreciation that happened during their lifetime. A property bought decades ago for $120,000 but worth $420,000 at death gets a stepped-up basis of $420,000; sell it later for $460,000 and you owe tax on just $40,000 of gain, not $340,000. See the full capital gains calculation guide for how this stepped-up basis interacts with currency conversion and reporting.

Form 8949 is where you itemize each sale of a capital asset — proceeds, adjusted basis, any adjustments, and the resulting gain or loss — with the totals then flowing to Schedule D, and it's required any time you sell a capital asset like foreign property or foreign stock at a gain or loss. For a foreign rental property specifically, Form 4797 may be needed alongside or instead of Form 8949 once depreciation recapture is involved, since that's a different reporting mechanism than a simple capital sale. See the full Form 8949 guide for exactly how to fill it out for a foreign asset sale.

Yes — the step-up in basis under US tax law applies to a decedent's worldwide property, not just property located in the US, so a foreign home, foreign rental, or other foreign real estate you inherit gets the same fair-market-value-at-death basis reset as a domestic inheritance would. This is one of the more valuable, underused facts in inheritance planning: it can eliminate US tax on decades of pre-inheritance appreciation on a foreign property in one step, simply by virtue of when ownership legally transferred. See the full strategies for inherited property for how to combine this with other available relief.

Your basis and your sale proceeds each get converted to US dollars using the exchange rate in effect on their own transaction date — the purchase-date rate for basis, the sale-date rate for proceeds — not a single blended or year-end rate, which can meaningfully distort your actual gain if the currency moved between those dates. This creates a real, often-overlooked possibility: a property that gained no value at all in local currency can still show a US-dollar gain (or loss) purely from currency movement between the purchase and sale dates. See the historical exchange rate lookup for pulling the correct rate for each transaction date.

Property held one year or less and then sold is taxed as a short-term gain at your ordinary income rates, while property held more than one year qualifies for long-term rates of 0%, 15%, or 20% depending on your total income — a difference that can be dramatic for a large foreign property sale. The exact date matters more than people expect: a sale that closes even a day before crossing the one-year mark is taxed at ordinary rates instead of the far more favorable long-term rates. High earners should also watch for the additional 3.8% Net Investment Income Tax, which can apply on top of the capital gains rate itself. See the full capital gains rate breakdown for the exact 2025 income thresholds at each rate tier.

The portion of your gain attributable to depreciation you claimed (or could have claimed) is taxed separately as "unrecaptured Section 1250 gain," at a rate of up to 25% — higher than ordinary long-term capital gains rates but capped below your top ordinary income rate. This applies whether or not you actually deducted the depreciation each year: "allowed or allowable" depreciation reduces your basis and increases your taxable gain regardless, which is a costly trap for anyone who skipped claiming depreciation on a foreign rental thinking it was optional. Since foreign residential rental property depreciates over a slower 30-year schedule than US property, the recapture calculation on a foreign rental reflects those smaller annual deductions — see the full foreign rental property depreciation rules for how to track this correctly from purchase through sale.

Yes, for investment or rental property — capital losses from other investments can offset a foreign property gain using the same netting rules that apply to any capital asset, and up to $3,000 of any remaining net loss can offset ordinary income each year, with the rest carrying forward indefinitely. One important carve-out: losses on the sale of personal-use property, like a foreign vacation home you never rented out, generally aren't deductible at all, even though a gain on that same property would be fully taxable — the loss rules aren't symmetrical with the gain rules here. See the full capital gains and loss netting rules for how personal-use versus investment property is distinguished.

It depends heavily on how you used the property: a foreign home that served as your primary residence can qualify for the Section 121 exclusion (up to $250,000 of gain tax-free, $500,000 married filing jointly) exactly like a US home would, while a foreign rental or investment property gets no such exclusion and is fully taxable on the entire gain. The residency requirement is the same either way — you generally need to have owned and lived in the home as your main residence for at least 2 of the 5 years before the sale — and currency conversion and the Foreign Tax Credit still apply on top of whichever category your property falls into. See the full Section 121 home sale exclusion rules for exactly how this applies to a foreign primary residence.

The mechanics mirror a foreign property sale: your basis is the USD value of what you paid on the purchase date, your proceeds are the USD value of what you received on the sale date, and the difference is taxed as short-term or long-term depending on your holding period. The real trap with foreign shares is different, though — many non-US mutual funds and ETFs are classified as Passive Foreign Investment Companies (PFICs), which get pulled out of simple capital gains treatment entirely and into a much harsher excess-distribution regime requiring Form 8621, sometimes even when the position is small. Before assuming a straightforward capital gains calculation applies, check whether the foreign investment tax rules actually classify your specific holding as a PFIC first.

Not quite the way the question is usually phrased — you don't claim the gain itself as a credit, but foreign income tax you actually paid on a foreign-source capital gain can be claimed as a Foreign Tax Credit against your US tax on that same gain, which is what actually prevents the double taxation. Most foreign investment gains fall into the "passive category" income basket on Form 1116, tracked separately from wages and other income types, and the credit is capped at the US tax attributable to that same foreign-source income — so it offsets double taxation rather than functioning as a general-purpose credit against any US tax you owe. See the Form 1116 guide for how the passive income basket and credit limitation actually work.

The legitimate options are narrower than people hope: the Section 121 exclusion if the property was your primary residence, the stepped-up basis if you inherited it rather than bought it, donating appreciated property to a qualified charity to eliminate the gain entirely, and the Foreign Tax Credit to prevent double taxation on whatever gain remains taxable. One option that doesn't work the way it does domestically: a 1031 like-kind exchange cannot be used to defer gain by exchanging US real property for foreign real property — the law explicitly treats the two as never like-kind to each other, regardless of how similar the properties are. See the full capital gains avoidance strategies for how these options combine depending on how you acquired the property.

Generally not on portfolio-type gains — nonresident aliens typically don't owe US capital gains tax on investments like US stocks, bonds, or mutual funds, but two major exceptions flip that: being physically present in the US for 183 days or more in the year (which triggers a flat 30% tax on US-source net capital gains), and selling US real property, which is taxed and withheld on regardless of presence under FIRPTA. The underlying logic is about income sourcing and connection to the US, not simply citizenship — a foreign-source gain with no US trade or business tie generally stays outside US tax entirely for a nonresident. See the full capital gains tax guide for nonresident aliens for the complete framework.

Generally no — this is a specific, long-standing carve-out in the tax code: nonresident aliens typically don't pay US capital gains tax on the sale of US stocks, bonds, or securities, which stands in sharp contrast to US real estate, where nonresidents are taxed and have tax withheld on the sale regardless of how briefly they're in the country. The main exception is the same 183-day physical presence rule that applies to other portfolio gains — cross that threshold in a calendar year and a flat 30% tax applies to US-source net capital gains for that year. See the full capital gains tax guide for nonresident aliens for why stocks and real estate are treated so differently under US tax law.