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Hello. I have a question about reporting income from selling

foreign property (sale occurring abroad)...
Hello. I have a question about reporting income from selling foreign property (sale occurring abroad) and paying taxes on it. For an expat who is now a us citizen, living in U.S. How do you minimize that? What does that depend on? Thank you.
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Answered in 4 hours by:
8/2/2013
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,030
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome and thank you for giving me the opportunity to assist you with your tax question.

 

The best way you can minimize being taxed on the sale of foreign property is if you meet the requirements of IRC Section 121 (you owned and lived in the property for 2 of the 5 years prior to the sale), you are allowed to use the $250,000 ($500,000 if married filing jointly) exclusion on the sale. If the result is a capital loss, this is considered a personal, non-deductible loss.

 

If you do not meet the requirements of IRC Section 121, you would report the gain by calculating the purchase price using the exchange rate at the time of the purchase, the cost of capital improvements using the exchange rate at the time the improvements were made and the exchange rate at the time of the sale, rather than by using the exchange rates at the time of sale in all three cases (C.J. Quijano v. US; 96-2 USTC P 50,441).

 

Most foreign governments also levy taxes on income and capital gains earned within their borders. The United States maintains treaties with certain other countries to help avoid double taxation so that American citizens will not be required to pay the same taxes twice.

Please let me know if you require further information or clarification. Thank you.

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,030
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Customer reply replied 4 years ago

Thank you. What documentation is required to prove the residency? If you do qualify for that, do you still report it on your tax return? How? Where?


 


I heard the tax rate on capital gains, long term is between 5% and 15 %. Is that right? How do you know exactly what it will be? Are there ranges for that? Thank you.

Thank you for your follow-up question.

 

By "documentation required to prove the residency," I'm assuming you mean your owning and living in the property for 2 out of the 5 years immediately preceding the sale. There is no documentation to send to the IRS regarding this. You would utilize Form 8949 and Schedule D and attach it to your 1040. The following are links to Form 8949, Schedule D and the instructions for both.

 

http://www.irs.gov/pub/irs-pdf/f8949.pdf

http://www.irs.gov/pub/irs-pdf/f1040sd.pdf

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf

http://www.irs.gov/pub/irs-pdf/i8949.pdf

 

The new capital gains tax rates starting in 2013 are as follows:

 

  • 0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
  • 15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
  • 20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.
  •  

    If hope this additional information is helpful to you. If not, please feel free to come back with any follow-up questions you may have.

     

    Thank you and best regards,

    Barb

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    Customer reply replied 4 years ago

    Thank you! Have follow up questions for both of my questions.


    For residency requirement, what would irs look at, if they were to audit? Even though, there is nothing needed to send with the tax return.


     


    And didn't see an answer to my other question as far as how to report the gain, if you do qualify for the residency exclusion. Still schedule D?


     


    For capital gains, does the tax bracket just for that year? What if there was no income that year, except as related to this sale? What bracket would that fall into?


     

    Hello, again.

     

    If you were audited, proof of ownership would be the deed showing when you purchased the property and the deed showing when you sold the property. As to proof of living there, electric bills, phone bills, etc.

     

    As to your other question, the exclusion amount will be included in Part II (Items F and G) of Form 8949. The capital gain, if any, would then be carried to Schedule D. That is the reason I sent you the links and instructions for these forms.

     

    As to capital gains, it would depend on the amount of income from the sale, if any. You can find the tax brackets at the following link:

     

    http://www.bankrate.com/finance/taxes/tax-brackets.aspx

     

    Thank you and best regards,

    Barb

    Ask Your Own Tax Question
    Customer reply replied 4 years ago

    Okay. Thank you!

    It's been my pleasure.

     

    If you have any questions in the future, please put "for bkb1956 or Barb" in the subject line, and I will be happy to assist you.

     

    Please take a moment to rate my answer since that is an important part of being an expert on JustAnswer, and I strive for excellence. Recommendations to family and friends are also always appreciated.

     

    Thanks again, and have a great day!

    Barb

    Ask Your Own Tax Question

    Just following up with you to find out if you were able to view the information in the links I provided and if you have an further questions. If you do, please post them here, and I will be happy to assist you.

     

    Thank you and best regards,

    Barb

    Ask Your Own Tax Question
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    Barbara
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    Barbara, Enrolled Agent
    Category: Tax
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