Selling Foreign Property as a U.S. Expat: Tax Rules
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Selling foreign property as a U.S. citizen or green-card holder is a reportable U.S. transaction whether or not the sale is taxed where the property sits. The U.S. taxes worldwide capital gains, computed in U.S. dollars, with the same rules that apply to a sale in Ohio — plus two complications that only arise abroad: currency movements and foreign tax.
On this page
How is the gain calculated?
Gain is the sale price minus your adjusted basis (purchase price plus improvements, minus any depreciation claimed on a rental). Each figure is converted to U.S. dollars at the exchange rate on its own date: the purchase price at the rate when you bought, the sale price at the rate when you sold. That means a property that lost value in local currency can show a U.S. gain if the dollar weakened in between — and the reverse.
Gains on property held more than a year are long-term and taxed at the preferential rates; property held a year or less produces ordinary income.
Does the home-sale exclusion apply to a foreign home?
Yes. The exclusion for a principal residence — up to $250,000 of gain, or $500,000 for a married couple filing jointly — applies to a home anywhere in the world, provided you owned and lived in it as your main home for at least two of the five years before the sale. For many expats this wipes out the U.S. gain on a home abroad entirely. Rental periods and depreciation claimed while renting reduce the benefit.
What is the foreign mortgage currency trap?
Paying off a mortgage denominated in a foreign currency is treated as a separate transaction. If the dollar strengthened between the loan date and payoff, you repay fewer dollars than you borrowed — and that difference is taxable ordinary income under the foreign currency rules, even though you never saw cash. If the dollar weakened, the resulting loss on a personal mortgage is not deductible. This catches sellers in countries whose currencies moved sharply against the dollar during the holding period, and it is not sheltered by the home-sale exclusion.
How is tax paid abroad handled?
Most countries tax gains on property located within their borders, often with withholding at closing. That foreign tax is creditable against the U.S. tax on the same gain through the foreign tax credit — but the credit is limited to the U.S. tax on foreign-source income in the same category, so a large foreign tax bill on a gain the U.S. exempts under the home-sale exclusion produces credits you may never use. Treaties generally confirm the property country's right to tax real estate.
Does an inherited or gifted foreign property work differently?
Inherited property generally takes a basis equal to its fair market value at the date of death, in dollars at that date's rate, which often eliminates most of the gain on a later sale. Gifted property carries the giver's basis. Large inheritances and gifts from abroad may also need to be reported on Form 3520 when received, separately from any later sale.
What has to be reported?
The sale goes on Form 8949 and Schedule D, with the foreign tax credit on Form 1116 if foreign tax was paid. If the property was rented, the final-year Schedule E and depreciation recapture are reported too. Sale proceeds deposited into a foreign account can push that account over the FBAR and Form 8938 thresholds for the year.
Frequently asked questions
The sale was tax-free in the country where the property is. Is it tax-free in the U.S.?
Not automatically. The U.S. computes its own gain in dollars. The home-sale exclusion may make it tax-free; a local exemption does not.
Can I deduct a loss on selling my foreign home?
No. Losses on a personal residence aren't deductible anywhere in the world. Losses on investment property are.
I'm selling a rental I depreciated. What's recaptured?
Depreciation claimed (or allowable) reduces basis, and the portion of gain attributable to it is taxed as unrecaptured gain at its own maximum rate. Foreign residential rentals bought after 2017 are depreciated over thirty years under the alternative system.
Do I report the sale if I'm catching up on unfiled years?
Yes, in the year of the sale. The Streamlined procedures cover the three most recent return years; a sale within that window is reported in its year.
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. If you're selling property abroad — or already did — our U.S. Tax Desk can compute the dollar gain, the exclusion, the currency effect, and the credit before the return is filed. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call