Have a Tax Question? Ask a Tax Expert
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If you sell a property after you become US residents for tax purposes (do not confuse with residency for immigration purposes) - and that property was your primary residence at least two years before the sale - you may exclude from your taxable income the capital gain - up to $250,000 for singles and up to $500,000 for married couples filing joint tax return.
Please see for reference IRS publication 523 page 11 - www.irs.gov/pub/irs-pdf/p523.pdf
Please let me know if you need any help or clarification.
Thanks you for your answer. Could you please explain the criteria for becoming "resident for tax purposes"?
You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for calendar year - see this publication page 4 - http://www.irs.gov/pub/irs-pdf/p519.pdf - you may also use the chart on the page 5 - Nonresident Alien or Resident Alien?
We bought the land and built the house approximately 11 years ago. A significant postion of our documentation (including documents relating to the cost of the build) we destroyed during a hurricane (hurricane Ivan in 2004) How will the cost be assesed for tax purposes?
Every effort should be made to find lost records, or partial records that may have "survived" a disaster. If partial records are recovered, they are the best place to begin a reconstruction.
A reconstruction of records is best approached in reverse order. In other words, begin with the end of the year and work backward. The following steps may be helpful in the reconstruction process:
You will want to evaluate the need for the records in relation to the cost of reconstruction.
There is no other way. but to recostruct all records.
Additionally, would we need to have the house valued at the time we move to the United States, and would that figure be used as the cost basis?
The fair market value of the property may only be used as the basis for inherited properties.
If the property was purchases - we should use the purchase price.
If the property was constructed - the construction cost should be used.
There is no way to determine the exact basis if you do not have supporting documents. You need to do your best to reconstruct all records in the way mentioned above.
You do not need to provide all supporting documents to the IRS with your tax return. However in case of audit - all documents should be provided - so if any cost is based on your own estimations - please be realistic to avoid possible objections from the IRS agent.
Again - there is no simple and exact way to determine the cost basis. If your actual cost was $450,000 to build the property - you need to be able to substantiate that amount - otherwise - there is a risk that in case of audit the IRS agent might disagree with your reasons.
You may qualify to exclude from your income all or part of any gain from the sale of your main home. This means that, if you qualify, you will not have to pay tax on the gain up to the limit. You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.
You meet the ownership test - owned the home for at least 2 years during the 5-year period ending on the date of the sale;
You meet the use test - Lived in the home as your main home for at least 2 years during the 5-year period ending on the date of the sale;
During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed. You may be able to exclude up to $500,000 of the gain on the sale of your main home if you are married and file a joint return
Please be aware that the gain from the sale or exchange of the main home is not excludable from income if it is allocable to periods of nonqualified use - fro instance - if the property was rented.
See more information in IRS publication 523 -