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If you’re a US citizen or resident who owns or sells property overseas, you not only need to know foreign tax policies, but you also need to report the sale on your annual US tax report. Know the ins and outs of reporting foreign capital gain to make sure you file on time and without discrepancy.
When you sell a property overseas, you’re responsible for capital gains taxes — or taxes you owe when you sell a property for more than you paid for it.
You must report any capital gains on Form 1040, Schedule D in USD. You can calculate your capital gain by looking at the exchange rate active at the time you purchased the property and the rate at the time you sold the property. It also depends on what type of foreign property you own.
If you lived in the residence for at least two out of the last five years, the property is considered a primary residence and you may qualify for a $250,000 deduction, ($500,000 for married couples) from any gain you had on the sale of the property.
If your foreign property isn’t your primary residence, it is considered an investment and is subject to standard capital gains tax rates.
According to the IRS, the tax rate on most net capital gain is no more than 15% for most taxpayers. In fact, some or all of your capital gain may be eligible for 0% tax if you fall within the 10% to 12% ordinary income tax bracket.
You may not receive any statements or forms regarding the sale of your property or interest made — such as 1099-INT or 1099-DIV — so you’ll need to document the sale and keep a close eye on the amount you made so you can report it. There are three forms you’ll need to fill out when reporting the sale of your foreign property:
When filling out these forms, you’ll need to use the active exchange rate at the time of purchase and the time of sale. If you can’t recall the active exchange rate, you can look it up using a historical currency table.
It depends. While a foreign home isn’t considered a reportable foreign asset under FATCA, a foreign bank account is. So, if you sell your home and put the money in a foreign bank account, it could trigger FATCA if the amount is above a certain threshold. In this case, you’ll need to report your foreign account on Form 114 and possibly Form 8963 to agencies such as FinCEN.
Every country has its own tax laws and will treat the taxation of capital gains differently. Some countries waive capital gains tax for foreign investors, while others will take a portion of any profit made on an investment property.
If you’re unsure about property and tax laws, contact the US embassy in the country you’ve purchased your property for further guidance and instruction.
If you’ve paid foreign tax on an overseas property, you should receive a 1099-DIV or 1099-INT payee statement. The earnings withheld by the foreign government will appear in Box 6.
US citizens are responsible for reporting all capital gains on foreign real estate and may be taxed on those gains depending on the nature of the overseas property. Foreign properties may also be subject to the tax laws of the country they’re located in, which means you could potentially be taxed twice on the same property.
The IRS offers a potential solution for double taxation in the form of foreign tax credits and deductions. To claim the foreign tax credit, you must file Form 1116, Foreign Tax Credit.
Looking for how to buy a property overseas ? Check out our guide
You can sell a foreign property overseas in person or remotely using these simple steps:
As with any investment, you’ll want to sell at a time when you can maximize profits. But pinpointing the right time to sell is a little more complicated when you’re dealing with an overseas property. You’ll want to examine factors such as exchange rates, housing market conditions and even the time of year when deciding when to put your property up for sale.
If the thought of selling foreign property overseas has your head spinning, hire a professional to help you out. Working with a real estate agent has its perks. For instance, they can:
Make sure you gather up your property’s title deed, Land Title Registry and any other documents proving you have no outstanding tax or utility debts. If you choose to work with a realtor, they’ll help you collect this information.
Waiting is often the hardest part. Be patient as your realtor arranges viewings and advertises your home. Now is a good time to make sure your home is looking its best. Add a vase of fresh flowers, remove excess clutter from your house and keep it looking tidy.
Once someone makes an offer, it’s time to sign the purchase and sales agreement. Once everything is finalized, you’ll pay the realtor’s commission or fees and wait for ownership to be fully transferred to the new owner.
The last step is to pay the capital gains tax on your foreign property and report the sale to the IRS and the foreign country’s government if required.
Repatriate your funds using a money transfer with a worldwide provider like Western Union or MoneyGram. Or opt for a money transfer specialist like OFX or XE to shop for the service that best fits your needs.
As a US citizen living in the US or abroad, capital gains from property sales are subject to US tax law. But you can avoid double taxation by filing for a foreign tax credit or deduction.
When moving money worldwide, explore your options with multiple providers to get the best service for your needs.
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I had a house in Belgium before I settled in the US. Now I want to sell that housein Belgium, do I need to report to the IRS and do I have to pay taxes?
Hi Hyunh,
Thanks for your comment and I hope you are doing well. There are certain conditions for CGT for a property you own overseas. As it says on the page, if you lived in the residence for at least two out of the last five years, the property is considered a primary residence and you may qualify for a $250,000 deduction, ($500,000 for married couples) from any gain you had on the sale of the property.
If you didn’t live on the property and it wasn’t a primary residence, the sale is subject to standard capital gains tax rates.
According to the IRS, the tax rate on most net capital gain is no more than 15% for most taxpayers. In fact, some or all of your capital gain may be eligible for 0% tax if you fall within the 10% to 12% ordinary income tax bracket.
Hope this helps and feel free to reach out to us again for further assistance.
Best,
Nikki