U.S. Taxes on Selling Property Abroad

Selling property abroad? Along with finding the right realtor and coordinating international logistics, there’s another factor you should keep in mind: Your U.S. taxes.

It’s important to keep Uncle Sam in mind from the very beginning. Selling property abroad as a U.S. citizen comes with some unique challenges that can sneak up on you come tax time if you aren’t prepared. The good news is you can relax — H&R Block is here to help.

American citizens selling property abroad

Taxes when selling real estate can be complicated even when that property is Stateside, and you probably have more than a few questions, like; "How much tax do I pay on the sale of property abroad?" "How do I report a sale of foreign property on my U.S. taxes?" "What taxes do you owe if the overseas property you sell was inherited?"

Below we’ve answered these questions and summarized the basics of what you should know about selling property abroad and U.S. taxes come tax time.

Sold an overseas property last year and ready to file? Get started on your expat taxes now.

U.S. capital gains tax on selling overseas 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 overseas property. The U.S. is one of only a few countries that taxes you on worldwide income — and gains made from foreign property sales are considered foreign income.

That means it doesn’t matter if the real estate you sold is in Austin, Texas or Auckland, New Zealand — you still have an obligation to report the gains you made on the sale. What’s more, if the gains are not excluded, you’ll pay a short-term or long-term capital gains tax on it.

When selling property abroad, different kinds of residences and properties have different kinds of reporting requirements and tax specifications. For example, selling an overseas rental property has different tax rules than when you sell an overseas primary residence.

A word of warning — you may also owe taxes to the country in which the overseas property lies, but you may be able to avoid paying capital gains taxes to both countries by claiming the foreign tax credit, which is a dollar-for-dollar credit on taxes paid to one of the countries.

Get started with an Expat Tax Advisor now.

U.S. taxes on sales of a primary foreign residence

A foreign residence/property qualifies as your principal residence if you lived in and owned it for at least 24 out of the last 60 months ending on the date of the property sale.

The same taxes and tax benefits that apply to selling your home in the U.S. also apply to selling your primary residence in a foreign country. 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

If your capital gain on selling that overseas property is over the limit, the excess will be taxed at the lower long–term capital gains rate. There are some exceptions for the 24–month ownership rule for events like a work-related move, so speak to your Expat Tax Advisor if you have extenuating circumstances.

U.S. taxes on sales of inherited foreign property

All the above conditions apply to U.S. taxes on sales of inherited foreign property, but you may have an extra step. Once a decedent passes, an inherited foreign property often receives a stepped–up basis, which is the property’s fair market value on the date the original owner passed away or deeded the property to you. Once that’s converted into USD, your capital gains would be any income you made over that original amount.

Not all inherited property is treated exactly like this — it depends on the way the property’s ownership was structured.

U.S. taxes on sales of foreign rental properties

If you’re selling a foreign rental property, any gain you realize may be taxed at multiple different rates, depending on the amount of your overall gain, your holding period, and the amount of depreciation claimed on the property.

Reporting requirements and U.S. taxes on selling overseas properties get more complicated if you do not own the property outright (which is somewhat common for overseas rental properties). If this sounds like your situation, another form you may have to file is Form 5471 (if the foreign property you’re selling is held by a foreign corporation).

Get started with an Expat Tax Advisor now.

Reporting the sale of foreign property to the IRS and FinCEN

Reporting the sale of foreign property can be tricky, depending on where the property is, whether the income from the sale was deposited into a U.S. or foreign bank account, and other factors. For example, if the sale was made in a currency other than USD, you’ll have to go back and calculate the exchange rate at the time the sale was made.

Just like you would with the sale of a U.S. property, you may need to file IRS Form 8949 and a Schedule D (and a Form 4797 for rentals). If the income you made from the sale of your foreign property was deposited into a foreign bank, you may have to report it on a Foreign Bank Account Report (FBAR) by using FinCEN Form 114. You may also need to file FATCA Form 8938.

Selling property overseas? Let H&R Block help handle your U.S. taxes.

Have more questions about the tax implications of selling real estate abroad? Ready to file? No matter what your U.S. tax situation is, we’ve got a expat tax solution for you — whether you want to be in the driver’s seat with our DIY online expat tax service designed for U.S. citizens abroad or want to let one of our Expat Tax Advisors take the wheel. Head on over to our Ways to File page to choose your journey and get started.