Green Card Holder Selling Foreign Property: Your Tax Questions Answered

According to the IRS, most green card holders pay between 0% and 15% in capital gains tax when selling foreign property, with many qualifying for complete exclusion if the property was their primary residence. 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 U.S. Taxes When Selling Foreign Property?

As a green card holder, you must report foreign property sales on your U.S. tax return. The IRS requires green card holders to report worldwide income, no matter where you live, including capital gains from selling property outside the United States.

However, this doesn’t necessarily mean you’ll owe significant taxes. For the current tax year, long-term capital gains rates remain favorable:

Long-Term Capital Gains Tax Rates:

0% rate: Income up to $48,350 (single) or $96,700 (married filing jointly)
15% rate: Income $48,351 to $533,400 (single) or $96,701 to $600,050 (married filing jointly)
20% rate: Income above $533,400 (single) or $600,050 (married filing jointly)

The good news? These thresholds increased about 2.8% from the previous year, meaning you can realize more gains at lower tax rates this year.

Selling Foreign Property as a Green Card Holder? Start Here.

Get clear on how much tax you actually owe, which forms apply, and how foreign tax credits and home-sale exclusions can reduce your bill, before you sign or file anything.

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.

Take Note

Currency exchange rates can significantly impact your U.S. tax calculation, even if you didn’t make a “real” profit in the foreign currency.

Example: Currency Conversion Impact

You’re a green card holder who bought a property in India for ₹15,000,000 in 2018 when the exchange rate was 70 rupees per dollar ($214,286 USD basis). You sell for ₹18,000,000 when the rate is 83 rupees per dollar ($216,867 USD). Despite a ₹3,000,000 gain in rupees, your USD gain is only $2,581 for U.S. tax purposes.

The IRS requires you to use the exchange rates from the actual transaction dates (purchase date and sale date). You can use official rates from sources like the Federal Reserve or xe.com. Keep documentation of which rates you used.

What Forms Do I Need to File?

When selling foreign property as a green card holder, you’ll typically need:

Required Forms:

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

FATCA Reporting Thresholds for Green Card Holders

Living Abroad:

Single: $200,000 on last day of year OR $300,000 at any time during year
Married filing jointly: $400,000 on last day OR $600,000 at any time

Living in the U.S.:

Single: $50,000 on last day of year OR $75,000 at any time during year
Married filing jointly: $100,000 on last day OR $150,000 at any time

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 U.S. tax liability using Form 1116.

The Foreign Tax Credit allows you to offset your U.S. 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 U.S., you’d owe $0 to the IRS after claiming the foreign tax credit.

This credit particularly benefits green card holders selling property in high-tax countries where your foreign taxes might exceed your U.S. tax bill. Any unused foreign tax credit can be carried forward for up to 10 years or back one year.

Example: Foreign Tax Credit in Action

You’re a green card holder who sold a property in Germany. The German government taxed your €80,000 gain at their capital gains rate, resulting in €20,000 (approximately $21,000 USD) in German taxes paid. Your U.S. tax on the same gain would be $12,000 at the 15% rate. You claim the full $12,000 as a credit, reducing your U.S. tax to $0, and can carry forward the remaining $9,000 credit to future tax years.

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 U.S. 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.

Example: Primary Residence Exclusion for Green Card Holders

You obtained your green card in 2019 and bought a home in Brazil where you lived as your primary residence. You sell the Brazilian property for a $200,000 gain. Because you meet both the ownership and use tests (owned and lived in it for more than 2 of the last 5 years), you can exclude the entire gain from U.S. taxation, owing $0 to the IRS.

Important

The 24 months don’t need to be consecutive. You can aggregate your time living in the house to meet the 2-year residency requirement.

What If I Maintained My Home Country Property?

Many green card holders keep property in their home country, either as a rental investment or as a family home. The tax treatment depends on how you used the property:

Rental Property

If you rented out the property, you must depreciate it over 40 years for U.S. tax purposes (foreign residential rental property uses the Alternative Depreciation System). When you sell, the IRS “recaptures” this depreciation and taxes it at a flat 25% rate. Any remaining gain is taxed at regular capital gains rates.

Example: Rental Property Sale

You’re a green card holder who kept your home in Mexico as a rental property. You bought it for $150,000 ($127,500 building, $22,500 land) and claimed $31,875 in depreciation over 10 years. You sell for $230,000.

Tax Calculation:

Original basis: $150,000
Depreciation claimed: -$31,875
Adjusted basis: $118,125
Sale price: $230,000
Total gain: $111,875

U.S. Tax Treatment:

First $31,875 (depreciation recapture): Taxed at 25% = $7,969
Remaining $80,000: Taxed at 15% long-term capital gains = $12,000
Total U.S. tax before Foreign Tax Credit: $19,969

If you paid Mexican taxes on this sale, you could use the Foreign Tax Credit to reduce this amount.

Personal Residence Maintained in Home Country

If you kept it as a personal residence (not renting it out) but didn’t live there as your primary residence for 2 of the last 5 years, you won’t qualify for the Section 121 exclusion. The gain will be taxed at capital gains rates, but you can still claim the Foreign Tax Credit for any foreign taxes paid.

Do I Have to Report This Even If I Don’t Owe Taxes?

Yes. You must report foreign property sales regardless of whether you owe U.S. 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. The IRS wants to see that you’re aware of the transaction and have properly calculated any tax owed.

What About Foreign Rental Properties I’m Still Holding?

If you’re a green card holder with foreign rental properties, remember:

Annual Reporting Requirements:

Report rental income on Schedule E of Form 1040
Depreciate the property over 40 years (30 years for commercial property)
Deduct qualifying expenses like repairs, maintenance, property management fees
Report foreign taxes paid and claim Foreign Tax Credit

Common Mistake: Many green card holders don’t realize they must report and pay U.S. taxes on foreign rental income annually, not just when they sell. The IRS can assess penalties for years of unreported rental income if discovered during a sale.

Can I Defer Taxes with a 1031 Exchange?

Yes, but with important limitations. A 1031 like-kind exchange allows you to defer capital gains taxes by reinvesting proceeds from one investment property into another.

Critical Rules for Green Card Holders:

You can only exchange foreign property for other foreign property
You cannot exchange foreign property for U.S. property (or vice versa)
Both properties must be held for investment or business use (not personal residence)
You must identify replacement property within 45 days and complete the exchange within 180 days

Example:

You’re a green card holder who sells an investment property in Singapore and reinvests in another investment property in Malaysia. This qualifies for 1031 treatment, deferring your U.S. taxes.

But if you sell the Singapore property and buy a U.S. rental property, the exchange does NOT qualify under current rules, and you owe immediate taxes on the gain.

What Common Mistakes Should I Avoid?

Currency Conversion Errors

Use the correct exchange rates for the transaction date (both purchase and sale). The IRS accepts rates from official sources. Mistakes here can significantly impact your tax calculation and trigger audits.

Missing Depreciation Records

If you rented the property at any point, maintain detailed records of depreciation claimed in prior years. This affects your cost basis and could result in significant penalties if calculated incorrectly during the sale.

Forgetting About FBAR

The sale proceeds typically go into a foreign bank account. If your aggregate foreign account balance exceeds $10,000 at any point during the year, you must file an FBAR. Missing this requirement can result in penalties starting at $10,000 per violation.

Not Planning for State Taxes

If you live in the U.S. and maintain state residency, you may owe state taxes on the gain. Many states don’t recognize the Foreign Tax Credit for state tax purposes. California, New York, and other high-tax states can add substantially to your tax bill.

Assuming Foreign Tax Treaty Benefits Apply

While green card holders are treated as U.S. residents for tax purposes, some foreign countries may still treat you as a resident of that country. Review any applicable tax treaties to understand your obligations in both countries.

Will I Face Double Taxation?

Many countries tax property sales by non-residents or former residents, but this doesn’t mean you’ll face double taxation. The U.S. foreign tax credit system allows you to credit foreign taxes paid against your U.S. tax liability, often eliminating or significantly reducing what you owe to the IRS.

Strategic Approach:

High-tax country property: Foreign taxes will likely exceed U.S. taxes. Use Foreign Tax Credit, owe little to nothing to IRS.
Low-tax country property: Foreign taxes might be less than U.S. taxes. Use Foreign Tax Credit for what you paid abroad, pay the difference to IRS.
Primary residence anywhere: If you meet Section 121 requirements, exclude the gain entirely. No U.S. tax, and you don’t need to worry about foreign tax credits.

What If I’m Planning to Give Up My Green Card?

If you’re considering abandoning your green card status, timing the property sale matters:

Before Abandoning Green Card

You’re subject to full U.S. tax reporting as described above
You can use Section 121 exclusion, Foreign Tax Credit, and all other benefits
You may be subject to the expatriation tax if you’re a “covered expatriate”

After Abandoning Green Card

You’re treated as a nonresident alien for tax purposes
Different rules apply (potentially FIRPTA withholding for U.S. property)
You lose access to many tax benefits available to green card holders

Important: Don’t sell property to avoid the expatriation tax without consulting a tax professional. The timing of property sales relative to green card abandonment can have significant tax implications.

What Are My Next Steps?

Getting foreign property sales right requires attention to detail and knowledge of U.S. and foreign tax laws. The interaction between different tax systems, currency conversions, and reporting requirements can be complex.

Action Plan for Green Card Holders:

Calculate your gain accurately using proper exchange rates for both purchase and sale dates
Determine if you qualify for the Section 121 primary residence exclusion (2 out of 5 years)
Calculate foreign taxes paid and prepare Form 1116 for the Foreign Tax Credit
Gather all documentation: purchase records, improvement receipts, depreciation schedules, foreign tax payment proof
Check FBAR requirements if sale proceeds are in foreign accounts
Consider state tax implications if you live in the U.S.

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 about green card holder taxes or working with Greenback, contact our Customer Champions.

Selling Abroad Should Not Put Your Green Card at Risk.

Work with a specialist who knows how foreign property sales, FBAR, and FATCA reporting fit together for green card holders, so you stay fully compliant and protected.

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.

Frequently Asked Questions

Is foreign income taxable in the U.S. 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. Green card holders are under the same worldwide income reporting requirements as U.S. citizens.

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 if I inherited the foreign property?

Inherited property receives a “step-up in basis” to the fair market value on the date of death. This often dramatically reduces your taxable gain when you sell. You may also need to file Form 3520 to report the inheritance if its value exceeds $100,000.