Does the sale of my foreign home qualify for the Foreign Earned Income Exclusion (FEIE)? The depreciable life of foreign properties is between thirty and forty years. However, the IRS depreciates foreign real estate with a different depreciating system than domestic properties. Do I still have to report a foreign property that’s depreciating?Įven if the value of your foreign home is depreciating, you still have to report it to the IRS. In some cases, you might also have to file Form 8938 (Statement of Specified Foreign Financial Assets). To do so, you’ll need to file the IRS Form 8949 and a Schedule D as well for any rental properties you own. How do I file the sale of my foreign home?įiling the sale of your foreign home is similar to reporting the sale of a home on US soil. Any taxes that you are paying in the local country can be used to offset these gains as mentioned below. If you lived less than two years in your foreign home, then the IRS will tax the sale of your home at capital gain rates. If you lived in your foreign home during at least two of the previous five years, you can exclude up to $250,000 from taxes ($500,000 for married expats). And depending on how much time you spent in your foreign home, you could qualify for some tax exclusions from the IRS. What are the tax implications of selling a home?īased on whether you had gains or losses with the sale of your foreign home, you’ll have to declare the sale to the IRS.
#IRS EXCHANGE RATES HOW TO#
If you purchased the house in a different currency than USD, you’d need to report this information on your tax return by converting the mortgage to claim these deductions.įor more information on how to do that, read our past article on how to use IRS exchange rates for your tax return. The type of deductions and amounts will depend on whether you are using the home as your primary residence or as an investment property. If you’re planning to buy an expensive house, the transfer tax is something you want to consider before going all in.Īlso, mortgage and interest may also still be deductible on your US tax return regardless of the location of your foreign home. Again, the transfer tax will differ for each country, but you can expect to pay around 1% to 10% in taxes. If you’re purchasing a home that used to belong to someone else, you may have to pay a transfer tax. That’s why you should work with a trusted tax advisor who can help you find ways to save the most money possible when buying a foreign home. The costs involved in buying a home (such as hiring a real estate agent and legal advisors) will also vary from country to country and can quickly add up. This has implications in that you are now a US citizen who owns a foreign corporation in which other forms are needed. For example, many countries require you to purchase your new home within a holding corporation instead of buying the house in your name. Your new home country’s local taxes and laws will significantly impact your home purchase. What are the tax implications of buying a foreign home? In addition, if the home that you inherited is worth more than $100,000 and the decedent was not a US citizen or resident, you would also be obligated to file Form 3520 (Reporting Foreign Trusts, Inheritances, and Gifts for Americans Abroad). If you eventually end up selling the home, the same rules will apply if you eventually end up selling the property. If you do decide to sell your house, you’ll need documents such as the proof of earnings from the home and any costs you invested in improvements. That’s why we recommend keeping all of your property-related documents throughout the ownership of your foreign home. However, if they decide to sell the home at any given time, then they need to report the gains or losses on Schedule D of their US tax return.
US expats don’t have to declare the purchase of a home overseas to the IRS since they won’t be making any income. Do I need to declare the purchase of a foreign home to the IRS? This blog post covers some of the most common questions we get from our Bright!Tax clients about purchasing a home overseas.
Others see it as an investment opportunity and want to use the foreign property as a source of passive income on Airbnb.īut while buying a home overseas might come with bragging rights, it also comes with tax obligations. Some want to escape the hectic lifestyle of the US and spend their last days relaxing and tanning on the beaches of Punta Cana. For different reasons, many Americans dream of buying a home overseas.
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