If you live in the U.S. and own real property located in another country, you may have some unique tax issues and concerns. You have to report the sale of foreign property to the Internal Revenue Service (IRS) when you sell it, just as you would any other sale of property in the U.S.
Whether you moved to the U.S. from that country and the property was your home before you moved or you decided to buy a vacation home in another country, if you sold it, you must figure out how to include the transaction on your U.S. tax return.
It's important to understand the process, especially while you're still in the planning stage of preparing to sell a foreign home or property, and particularly if you intend to transfer the money to your U.S. bank account.
Key Takeaways
- If you own a home or other property in another country that is outside the U.S., you'll need to report the transaction to the IRS.
- To report the sale, you'll follow the same steps that you would if the home or property you owned was located in the U.S.
- If the property was your principal residence, and you lived inand owned the house for at least two out of the last five years ending on the date of the sale, you'll only pay taxes on any gains over $250,000 ($500,000 if married filing jointly).
- If you have to pay taxes on the sold property in the country where it's located, you may be able to claim those taxes as a foreign tax credit on your U.S. return.
Reporting the Sale of a Foreign Home
The U.S. taxes you on any income you earn, whether it's earned in the U.S. or another country. So if you owned a home or property in another country, and then sold that home for a profit, you'll need to report thesale just as you would if it were located in theU.S.
The Internal Revenue Code provides certain exclusions if the property actually served as your main home. If the house was your principal residence, and you lived inand owned the house for at least 24 out of the last 60 months (two out of the last five years) ending on the date of the sale, you can exclude $250,000 of capital gains from taxation. This amount increases to $500,000 in capital gains if you're married and you and your spouse file a joint return.
Gains on a primary residence in excess of the exclusion amount will be taxed as long-term or short-termcapital gains,depending on how long you owned the property. Long-term gains apply to assets owned for more than a year and may be taxed at a lower rate.
If you can't exclude the gain, use Form 8949 to report the gain from the sale of the home. You'll also need to fill out Schedule D of Form 1040 with the info on Form 8949.
Foreign Rental Property and Taxes
There may be instances when you sell a foreign home that you don't live in as your primary residence, such as if the house was used as a vacation home, or if you rented it out as an extra source of income. If the house you sell is a rental property, you'll have to calculate your gains using the rules for selling rental properties.
Another option could be to use the rental property as your primary residence for two years leading up to the sale. This would allow you to take advantage of the $250,000 or $500,000 capital gains exclusion.
Note
There is no exclusion for business or rental property, only for primary residences, but you can deduct costs you incur in maintaining the property and in leasing it out, and you may be able to claim depreciation. You'll need to include Schedule E of Form 1040 if you're looking to claim expenses and costs for your rental property.
Will You Owe Taxes to the Foreign Country?
You might also have topay taxes on the transaction to the country where the property is located, depending on the tax laws there, but you may be able to catch a tax break here as well. Those taxes can potentially be claimed as a foreign tax credit on your U.S. return.
Unfortunately, you can't claim a foreign tax credit based on any gains you excluded under the provisions of Internal Revenue Code Section 121—the $250,000 or $500,000 exclusions for the sale of your personal residence.
If you're eligible to claim the foreign tax credit, you'll need to file form 1116.
Other Considerations When Selling a Home in Another Country
By reporting your gains and any exclusions for the sale of property in another country on your tax return, you should have sufficient documentation to show why a significant amount of money was transferred into your U.S. bank account. You should also remember to report anyforeign bank accountsyou might own on your tax return.
Frequently Asked Questions (FAQs)
How do I report the sale of my overseas property to the IRS?
For the year in which you sold a foreign property, you have to report the proceeds as income on your tax return using Form 8949, for the Sales and Other Dispositions of Capital Assets. You'll also need to fill out Schedule D to fill in the capital gains and losses portion of Form 1040.
Do I have to pay U.S. taxes if I sell a foreign property that I inherited?
Whether the property you own abroad is from your own purchase or from an inheritance, you are responsible for the tax liability that comes from its sale. Sales of inherited foreign properties receive the same tax treatment.
FAQs
U.S. capital gains tax on selling foreign property. When you sell property or real estate in the U.S. you need to report it and you may end up owing a capital gains tax. The same is true if sell real estate overseas, and we don't recommend trying to avoid a capital gains tax on foreign property.
Do I have to pay US tax on property sold overseas? ›
Reporting the Sale of a Foreign Home
The U.S. taxes you on any income you earn, whether it's earned in the U.S. or another country. So if you owned a home or property in another country, and then sold that home for a profit, you'll need to report the sale just as you would if it were located in the U.S.
Do I have to declare foreign property to IRS? ›
Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.
How does foreign property affect U.S. taxes? ›
If you sell your foreign home, the tax treatment is similar to selling a home in the U.S. If you lived in and owned the property for at least two of the last five years, it qualifies as your primary residence. You you can exclude up to $250,000 of capital gains (or up to $500,000 for married taxpayers) from the sale.
What IRS form for sale of foreign property? ›
About Form 8938, Statement of Specified Foreign Financial Assets | Internal Revenue Service.
How can I avoid capital gains tax on foreign property in USA? ›
That means any gain from selling your primary residence overseas is usually tax-free, as long as you meet the occupancy requirements and your gain is below these thresholds: $500,000 – if you're married filing jointly. $250,000 – if you use any other filing status.
How do I avoid capital gains on foreign property? ›
Ways to Avoid Paying Capital Gains on Foreign Property
- Capital Gains Exclusion. If you sell a foreign property, you may be able to deduct some or all of the capital gains. ...
- Avoid Short-term Capital Gains. ...
- 1031 Exchange. ...
- Mortgage Interest Deduction.
Tax forms associated with selling a foreign property
- Form 8949 “Sales and Other Dispositions of Capital Assets” Anyone who sells a house, gifted or not, must file Form 8949 (2) and report any capital gains.
- Schedule D (3)
Under U.S. tax law, a foreign person that sells or exchanges a U.S. real property interest must report the gain on a U.S. tax return, and the buyer of the U.S. real property interest must withhold and pay to the IRS 10 percent of the gross amount paid to the foreign person.
What happens if you don't report foreign assets? ›
In addition to the tax and interest triggered by the foreign asset income, the taxpayer must pay a miscellaneous penalty equal to 5 percent of any foreign asset (i.e., a bank account) that was not properly reported on the original returns. (See http://www.irs.
If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.
Can you sell a house from overseas? ›
Can I Sell My House from Overseas? Yes. You can sell your US home while living in another country. However, selling your home while overseas can present some unique challenges—and complications for your expat tax return.
Can IRS seize foreign real estate? ›
Yes. Regardless of where you live, the IRS can file a lien against your assets regardless if the assets are located in the US or in a foreign country. Just as long as you own the assets, they are subject to levy.
Can I sell my property in India and bring money to USA? ›
How much money can be transferred from India to the USA? The US authorities do not impose a limit on the amount of money you can send from India. However, you may need to report high value payments to the IRS using IRS Form 3520.
Do you have to report foreign capital gains? ›
If you receive foreign source qualified dividends and/or capital gains (including long-term capital gains, unrecaptured section 1250 gain, and/or section 1231 gains) that are taxed in the U.S. at a reduced tax rate, you must adjust the foreign source income that you report on Form 1116, Foreign Tax Credit (Individual, ...
Do I have to pay capital gains tax in two countries? ›
As an American living abroad, you may be required to pay a capital gains tax to a foreign government when selling a foreign property. Of course, this could create a risk for double taxation—being taxed twice for the same capital gain, once by the US and again by a foreign government.
How do I avoid double taxation on foreign capital gains? ›
Foreign Tax Credit
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
What is capital gains tax on 200000? ›
= $
| Single Taxpayer | Married Filing Jointly | Capital Gain Tax Rate |
|---|
| $0 – $44,625 | $0 – $89,250 | 0% |
| $44,626 – $200,000 | $89,251 – $250,000 | 15% |
| $200,001 – $492,300 | $250,001 – $553,850 | 15% |
| $492,301+ | $553,851+ | 20% |
Jan 11, 2023
The fact that the gift is from a foreign person is irrelevant. Therefore, if you receive a monetary gift or an inheritance from relatives abroad, you will not have to pay taxes on it. However, you must report the gift or inheritance to the IRS if the amount you receive exceeds a certain threshold.
How do I flip my property to avoid capital gains tax? ›
The IRS lets you swap or exchange one investment property for another without paying capital gains on the one you sell. Known as a 1031 exchange, it allows you to keep buying ever-larger rental properties without paying any capital gains taxes along the way.
Long-term capital gains tax rates for the 2023 tax year
In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.
What is the foreign income exclusion for capital gains? ›
The maximum foreign earned income exclusion amount is adjusted annually for inflation. For tax year2021, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $108,700 per qualifying person. For tax year2022, the maximum exclusion is $112,000 per person.
Which foreign assets should I report to IRS? ›
Assets required to be reported on Form 8938 are stocks and securities that are issued by a foreign corporation, contact, or investment with an issuer or counterparty that is not a U.S.-based person. Foreign accounts maintained by foreign financial institutions must also be reported on Form 8938.
Who is responsible for withholding taxes for the sale of a property owned by a foreign person under Firpta? ›
In most cases, the buyer (transferee) is the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax.
Who has to report foreign assets? ›
FBAR Filing
If you have a financial interest in, or signature or other authority over, a financial account in a foreign country, such as a bank account, brokerage account, mutual fund, unit trust, or other financial account, you may be required to report this to the U.S. government under the Bank Secrecy Act.
What is the 50% rule for FIRPTA? ›
50% Rule: Simplistically, if the buyer, at the time of sale, has plans to reside at the property, more than it will be rented out, over each of the following two 12-month periods, the sale is potentially eligible for the exemption. Uncertainty can arise in counting days of residing at the property.
Who determines if the seller has a tax obligation under FIRPTA? ›
A prudent broker will have a list of CPAs or attorneys who are familiar with FIRPTA to provide to a seller with a foreign status. The CPA or attorney can guide the seller and advise them regarding their tax obligations under this law.
Do I need to declare foreign assets? ›
The income tax return contains a 'Schedule FA' for the declaration of the foreign assets or accounts in respect of which you are a legal owner, a beneficiary, or a beneficial owner.
How does the IRS know if you have a foreign bank account? ›
Through FATCA, the IRS receives account numbers, balances, names, addresses, and identification numbers of account holders. Americans with foreign accounts must also submit Form 8938 to the IRS in addition to the largely redundant FBAR form.
Are foreign bank accounts reported to IRS? ›
Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts.
States with no income tax for expats
- Alaska.
- Florida.
- Nevada.
- South Dakota.
- Texas.
- Washington.
- Wyoming.
Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country.
What is the 330 days foreign exclusion rule? ›
To benefit from the Foreign Earned Income Exclusion, the taxpayer must meet one of the following criteria: Works full time in a foreign country for an entire calendar year—known as the Bona Fide Residence Test. Works outside of the United States for at least 330 of any 365 day period—known as the Physical Presence Test.
How do I sell my international property? ›
Six steps to selling property abroad
- Choose the right time to sell. As with any investment, you'll want to sell at a time when you can maximize profits. ...
- Work with a real estate agent. ...
- Prepare your documents. ...
- Wait for someone to make an offer. ...
- Sign the sales contract and pay any fees. ...
- Report your sale to the IRS.
Is selling a home in the UK subject to US taxes? For US citizens or Green Card holders selling their principal home in the UK, it is tax-free. However, capital gains tax could be enforced on the US side if the gains exceed the exclusion amount. The sale of a home is not taxable in the UK but is in the US.
Do I have to pay taxes if I sell a property in Mexico? ›
Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions): the percentage is calculated on a sliding scale in relation to the gain and we ...
Do I need to declare foreign property in USA? ›
Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property.
What are the three assets the government can't touch? ›
Insurance proceeds and dividends paid either to veterans or to their beneficiaries. Interest on insurance dividends left on deposit with the Veterans Administration. Benefits under a dependent-care assistance program.
What assets can the IRS not seize? ›
There are only a few types of assets that cannot be seized. The IRS cannot seize real property, and your car cannot be seized if used to get to and from work. You also cannot seize the money you need for basic living expenses. However, all of your other assets are fair game for seizure.
How much money can I transfer from India to USA without taxes? ›
No, the money transferred to US from India is not taxable. But, if it exceeds US $100,000 for any current year, you must report it to the IRS by filing Form 3520. This is just an informational form with no taxes payable.
When traveling overseas, as an Indian resident, you are allowed to carry an unlimited amount of foreign currency. You should know that this is subjected to CDF (Currency Declaration Form) filing at Customs in the case of $10,000 or $5,000 conditions prescribed.
Can a US citizen inherit property in India? ›
A Non-Resident Indian or a Foreign national such as UK, US or Canadian citizens can inherit the property in India from anyone including their relatives. The NRI can inherit property in India even from another NRI, subject to certain conditions.
What happens if you don't report capital gains to IRS? ›
If you fail to report the gain, the IRS will become immediately suspicious. While the IRS may simply identify and correct a small loss and ding you for the difference, a larger missing capital gain could set off the alarms.
What happens if you don't report foreign income to IRS? ›
As a U.S. taxpayer, you can face penalties for failing to report your foreign-earned income even if you don't owe any federal income tax. The IRS penalizes both failures to report and failures to pay and the penalties for reporting violations can be substantial.
Which countries do not have tax treaty with US? ›
For example, depending on the local country laws, taxpayers could be considered to be doing business if they are merely soliciting sales. Some notable examples of countries for which the U.S. does not currently have an income tax treaty include Brazil, Argentina, Chile, Vietnam and Singapore.
Where can you put capital gains to avoid taxes? ›
Contribute to Your Retirement Accounts
Investing in retirement accounts eliminates capital gains taxes on your portfolio. You can buy and sell stocks, bonds and other assets without triggering capital gains taxes. Withdrawals from Traditional IRA, 401(k) and similar accounts may lead to ordinary income taxes.
Which country has the highest tax rate on capital gains in the world? ›
Denmark levies the highest top capital gains tax of all countries covered, at a rate of 42 percent. Norway levies the second-highest top capital gains tax at 35.2 percent. Finland and France follow, at 34 percent each.
Do you have to pay taxes on money transferred from overseas? ›
Americans who receive financial gifts from foreign loved ones won't have to pay taxes on the transfer. However, if you yourself sent funds to an American while abroad, you might. Recipients of foreign inheritances typically don't have a tax liability in the United States.
How do I report foreign property sale to the IRS? ›
The contract with the foreign person to sell assets held for investment is a specified foreign financial asset investment asset that you have to report on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.
Can I sell my house from another country? ›
Filing the sale of your foreign home is similar to reporting the sale of a home on US soil. To do so, you'll need to file the IRS Form 8949 and a Schedule D as well for any rental properties you own. In some cases, you might also have to file Form 8938 (Statement of Specified Foreign Financial Assets).
