Green Card Holder Selling Foreign Property: Your Tax Questions Answered
Here’s the relief you need right away: most green card holders pay no more than 15% in capital gains tax when selling foreign property, with many qualifying for 0% rates in 2025. As a green card holder, you must report the sale to the IRS just like any domestic property transaction, but with the right approach, your tax liability might be lower than you expect.
The key is knowing your obligations and planning accordingly. Whether you’re selling a rental property in your home country or a vacation home abroad, we’ll walk you through exactly what you need to know to stay compliant while minimizing your tax burden.
Do I Have to Pay US Taxes When Selling Foreign Property?
As a green card holder, you must report foreign property sales on your US tax return. The IRS requires green card holders to report worldwide income, no matter where they live, including capital gains from selling property outside the United States.
However, this doesn’t necessarily mean you’ll owe significant taxes. For 2025, long-term capital gains rates remain at 0%, 15%, or 20%, depending on your taxable income, and many green card holders qualify for the lower rates.
2025 Long-Term Capital Gains Tax Rates:
- 0% rate: Up to $47,025 (single) or $94,050 (married filing jointly)
- 15% rate: $47,026 to $518,900 (single) or $94,051 to $583,750 (married filing jointly)
- 20% rate: Above $518,900 (single) or $583,750 (married filing jointly)
The good news? These thresholds increased about 2.8% from 2024, meaning you can realize more gains at lower tax rates.
How Do I Calculate My Capital Gains Tax?
Your capital gains tax depends on three factors: how long you owned the property, your total taxable income, and your cost basis in the property.
- For Property Held More Than One Year: Calculate your gain by subtracting your adjusted basis (original price plus improvements minus depreciation) from the sale price. This gain gets taxed at the preferential long-term capital gains rates above.
- For Property Held One Year or Less: Short-term gains are taxed as ordinary income at your regular tax bracket rates, which can be as high as 37% for high earners in 2025.
Currency exchange rates can significantly impact your US tax calculation, even if you didn’t make a “real” profit in the foreign currency.
What Forms Do I Need to File?
When selling foreign property as a green card holder, you’ll typically need:
- Schedule D: Report capital gains and losses
- Form 8949: Provide detailed transaction information
- Form 1116: Claim foreign tax credits if you paid taxes in the other country
- Form 8938: Report foreign assets if you meet threshold requirements
- FinCEN Form 114 (FBAR): Report foreign financial accounts exceeding $10,000
Dreading the last minute scramble of pulling together your tax documents? Despair no more!
Can I Use the Foreign Tax Credit to Reduce My Tax Bill?
Absolutely. If you paid taxes on the property sale in the foreign country, you may be able to claim a dollar-for-dollar credit against your US tax liability using Form 1116.
The Foreign Tax Credit allows you to offset your US taxes with foreign taxes paid on the same income. For example, if you paid $3,000 in foreign taxes on a property sale and owe $2,000 to the US, you’d only owe $0 to the IRS after claiming the foreign tax credit.
This credit benefits green card holders selling property in high-tax countries where your foreign taxes might exceed your US tax bill. Any unused foreign tax credit can be carried forward for up to 10 years or back one year.
What About the Primary Residence Exclusion?
If the foreign property was your primary residence for at least 2 of the last 5 years, you may exclude up to $250,000 in gains (single) or $500,000 (married filing jointly) from US taxation under Section 121.
This exclusion applies to foreign and domestic properties. The key is meeting the residency requirement—you must have lived in the property as your main home for at least 24 months during the 5-year period ending on the sale date.
Do I Have to Report This Even If I Don’t Owe Taxes?
You must report foreign property sales regardless of whether you owe US taxes. Form 8938 may be required if your foreign assets exceed certain thresholds, and FBAR filing is mandatory if your foreign accounts exceeded $10,000 at any point during the year.
The reporting requirements exist separately from your tax liability, and penalties for non-compliance can be substantial.
What About Foreign Rental Properties?
Foreign rental properties require additional considerations:
- Depreciation Recapture: Foreign residential rental properties depreciate over 40 years rather than the 27.5 years for US properties
- Ordinary Income Treatment: Rental income throughout ownership gets reported on Schedule E and taxed at ordinary income rates
- Foreign Tax Credits: You can often claim credits for foreign taxes paid on rental income
Will I Face Double Taxation?
Many countries tax property sales by non-residents, but this doesn’t mean you’ll face double taxation. The US foreign tax credit system allows you to credit foreign taxes paid against your US tax liability, often eliminating or significantly reducing what you owe to the IRS.
Learn more about how to avoid capital gains tax on foreign property using legitimate strategies.
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Common Mistakes to Avoid
- Currency Conversion Errors: Use the correct exchange rates for the transaction date and year-end valuations. Mistakes here can significantly impact your tax calculation.
- Missing Depreciation Records: If you owned rental property, maintain detailed records of depreciation claimed in prior years, as this affects your basis calculation.
- Forgetting About FBAR: Don’t overlook the FBAR requirement if your foreign accounts exceeded $10,000 at any point during the year.
- Late Filing: Missing deadlines can result in substantial penalties, especially for international reporting forms like Form 8938.
Frequently Asked Questions
Is foreign income taxable in the US for green card holders?
Yes. Green card holders are required to report all worldwide income to the IRS, including income from foreign property sales, overseas rental income, and investment gains.
Can I use the foreign earned income exclusion for property sales?
No. The Foreign Earned Income Exclusion (FEIE) only applies to earned income like wages and self-employment income. It does not apply to capital gains from selling property.
What happens if I don’t report a foreign property sale?
Not reporting a foreign property sale can lead to severe IRS penalties, interest charges, and in extreme cases, even criminal charges for tax evasion.
Do I need to pay taxes in both countries?
Possibly—but the Foreign Tax Credit (Form 1116) can help offset this. It allows you to claim a credit for foreign taxes paid on the same income, reducing or eliminating double taxation.
What’s My Next Step?
Getting foreign property sales right requires attention to detail and knowledge of US and foreign tax laws. The interaction between different tax systems, currency conversions, and reporting requirements can be complex.
If you realize you’re in over your head and worried that you’ll mess it up, let us help. No matter how late, messy, or complex your return may be, we can help. Knowing that your taxes were done right will give you peace of mind.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
This article is for informational purposes only and should not be considered tax advice. Tax situations can be complex, and individual circumstances vary. Please consult with a qualified tax professional regarding your specific situation.
