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Many expats retain their property in the US when they move overseas. Some plan to rent it out for extra income. Others simply want to keep a foothold in the US just in case they change their minds.
Regardless, once you’ve moved overseas, you may decide that it’s better to sell your old home after all. But how easy is that to do? What are the tax implications of selling your house while living abroad?
Here’s what you need to know.
Yes. You can sell your US home while living in another country. However, selling your home while overseas can present some unique challenges—and complications for your expat tax return. Before you start the process, it’s always a good idea to know what to expect.
When you sell a home—or any other type of real estate—you will have a capital gain or loss. If the house sells for more than you originally paid for it, you have a capital gain. If it sells for less than you originally paid for it, you have a capital loss. (Other factors can come into play, but we’re keeping this explanation simple for now.)
If you receive a capital gain from the sale of your house, you will generally have to report it to the IRS. You may even owe a capital gains tax on the increased value of the home.
This applies regardless of whether you’re in the US or living abroad at the time of the sale. (In fact, it even applies when selling property located in another country.)
Fortunately, when selling your house while living abroad, you may be able to use the Main Home Exclusion to shield your capital gains from taxation.
The Main Home Exclusion is an IRS tax benefit that lets homeowners exclude some or all the capital gain on the sale of their home from taxation. In most cases, the Main Home Exclusion lets you exclude up to $250,000 of the gain from taxation. If you file as married filing jointly (and both spouses qualify), the exclusion amount increases to $500,000.
However, not everyone is eligible for the Main Home Exclusion. What about expats?
In some cases, yes. Living in another country doesn’t automatically bar you from claiming the Main Home Exclusion. However, there are qualifying conditions that may prevent some expats from excluding their capital gains.
To qualify for the Main Home Exclusion, both of the following standards must be true:
These two-year periods do not have to coincide. And in both cases, the two years do not have to be a continuous block of time. For example, if you used a US home as your primary residence for one year, then moved away for three years, then returned to your original home for another year, you would still qualify for the primary residence requirement.
Depending on how long ago you moved away from the US, these standards may disqualify you from claiming the Main Home Exclusion. However, even if you don’t qualify under these rules, certain extenuating circumstances might allow you to claim a portion of the exclusion anyway.
Broadly speaking, the IRS can be quite lenient when making exceptions to the Main Home Exclusion’s two-year primary residence requirement. Let’s look at some examples.
You may be able to claim a partial Main Home Exclusion if you moved away from your primary residence because:
For a more detailed list of exceptions to the Main Home Exclusion qualifications, see the information provided by the IRS.
You will need to report the capital gain on the sale of your US property if either of the following is true:
If you receive Form 1099-S, you must report the sale even if you had no taxable capital gains. This form is generally issued by the real estate agent who closed the sale.
If you are required to report the sale, you should do so using Form 8949: Sales and Other Dispositions of Capital Assets. Once you’ve completed this form, attach it to your annual tax return and file both together. In most cases, you will also need to report the sale on a state tax return for the state in which the property is located.
Note: in addition to attaching Form 8949 to your Form 1040 tax return, remember to report the sale on Schedule D of Form 1040 itself.
We hope this guide has helped you understand the tax implications of selling your house while living abroad. If you still have questions, we have answers.
At Greenback Expat Tax Services, we help Americans living abroad file their expat taxes accurately and on time. Just contact us, and we’ll be happy to help you in any way we can. We can even prepare your expat taxes on your behalf.
Get started with your expat tax return.