Ed note: H&R Block Expat Tax Services is a highly specialized team of tax attorneys, CPAs and enrolled agents whose singular focus is expat tax preparation for Americans abroad. These tax situations can be very complex, so we are featuring some answers to common questions here. Today’s post focuses on how home sales should be handled. Remember that due to the complexity of U.S. tax reporting for expats and its highly fact-specific nature, these responses are purely general in nature.
Lots of people are asking about their phantom gains from house sales abroad (like London Mayor Boris Johnson!). How do you know whether to report a real estate sale and what taxes apply?
U.S. citizens living abroad are required to report the sale of their principal residences located in foreign countries on their U.S. tax return.
Since the sale is reported in U.S. dollars based on the transaction dates and not the sale dates, currency exchange gain or loss can occur in addition to the actual gain or loss from the sale of the house.
The same taxes and tax benefits that apply to your home in the United States also apply to your foreign home. So, a gain on the sale of your foreign home is usually tax-free provided the gain is below these thresholds: $500,000 if you’re married filing jointly and $250,000 if you use any other filing status. If the gain from the sale of the house were a taxable transaction, the gain would be treated as foreign source income and foreign tax credits could be used to offset the U.S. tax liability.
This Q&A first appeared in an American in Britain magazine article.
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