Tax Implications of Selling Property in Your Home Country

Selling Foreign Property Triggers US Tax Reporting

If you are a US citizen, green card holder, or resident alien and you sell a house, apartment, or other real estate in your home country, the gain is taxable in the United States. The IRS taxes worldwide income, regardless of where the property is located or where the sale proceeds are deposited.

How to Calculate Your Capital Gain

The gain equals your sale proceeds minus your cost basis, both expressed in USD.

Step 1 - Determine the cost basis in USD

Your basis is the original purchase price converted to USD using the exchange rate on the date of purchase. Add the USD value of any capital improvements, each converted at the rate on the date the improvement was made. Closing costs paid at purchase can also be added to the basis.

Step 2 - Determine sale proceeds in USD

Convert the sale price to USD at the exchange rate on the closing date. Subtract selling costs such as agent commissions and legal fees.

Step 3 - Calculate the gain or loss

Subtract the USD basis from the USD proceeds. A positive number is a capital gain; a negative number is a capital loss.

Short-Term vs. Long-Term Rates

Most property sales qualify for long-term rates because the property was held for several years.

Where to Report

• Form 8949: List the property details, dates, basis, and proceeds.
• Schedule D: Summarize the totals from Form 8949.
• Form 1116: Claim the Foreign Tax Credit if you paid tax on the gain in your home country.

The Foreign Tax Credit

If the country where the property is located taxes the gain, you can claim a Foreign Tax Credit on Form 1116 to offset your US tax dollar for dollar. You cannot deduct a foreign tax and claim a credit for the same payment - choose one method. The credit is generally more valuable than the deduction.

Primary Residence Exclusion

The Section 121 exclusion applies to foreign homes as well as US homes. If the property was your primary residence for at least 2 of the 5 years before the sale, you can exclude:

• $250,000 of gain if filing single
• $500,000 of gain if married filing jointly

The exclusion does not apply to investment property or vacation homes that do not meet the residency requirement.

Currency Gain Considerations

Beyond the property gain itself, the IRS may treat any currency fluctuation separately. In practice, most taxpayers calculate the entire gain using the USD conversion method above and do not separate out a currency component, but complex situations may warrant consulting a tax professional.

Start the 5-Minute Diagnostic

Foreign property sales involve exchange rate calculations, the foreign tax credit, and potential exclusions. The free Declara.Tax diagnostic walks you through your specific situation and tells you exactly which forms apply.