17 Selling Property in Your Home Country: Local Tax and Your U.S. Return
Question for this chapter. If you live in the U.S. and sell a house, apartment or land in your home country, which country taxes the sale, and how does the tax you pay abroad fit into your U.S. return?
Answer. A country can generally tax property located inside its borders even when the seller no longer lives there, and the treaties covered in this chapter mostly follow the same idea. The U.S. separately looks at the same sale: it may leave part of the gain on a qualifying home out of income, and it may let you count income tax paid abroad against U.S. tax. Whether either rule applies depends on your own facts, so the two countries' taxes should not be assumed to offset each other.
What to check
- Your residence status in the home country and for U.S. tax purposes, since every other rule depends on it.
- Whether you owned and lived in the home long enough, and recently enough before the sale, to meet the U.S. home-sale exclusion tests.
- Whether the buyer or a notary withholds part of the proceeds, and how that withheld amount differs from your final tax in each country.
- Whether the foreign tax you paid is an income tax or a property-type tax, because only the former can be considered for the U.S. credit.
- Your records of purchase, improvements, sale and each tax payment, including dates, plus any foreign account that receives the sale money.
What to confirm. Confirm your tax residence in both countries and how the home country and the U.S. each calculate the gain on your particular property.
One-line summary. A home-country property sale is looked at under both countries' rules, and any U.S. relief for the gain or the foreign tax depends on your specific situation.
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