Do You Have To Pay US Taxes on the Sale of Foreign Property?

You might not have to pay taxes on the sale of a home you own in another country

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If you live in the U.S. and own real property located in another country, you may have some unique tax issues and concerns. You have to report the sale of foreign property to the Internal Revenue Service (IRS) when you sell it, just as you would any other sale of property in the U.S.

Whether you moved to the U.S. from that country and the property was your home before you moved or you decided to buy a vacation home in another country, if you sold it, you must figure out how to include the transaction on your U.S. tax return.

It's important to understand the process, especially while you're still in the planning stage of preparing to sell a foreign home or property, and particularly if you intend to transfer the money to your U.S. bank account.

Key Takeaways

  • If you own a home or other property in another country that is outside the U.S., you'll need to report the transaction to the IRS.
  • To report the sale, you'll follow the same steps that you would if the home or property you owned was located in the U.S.
  • If the property was your principal residence, and you lived in and owned the house for at least two out of the last five years ending on the date of the sale, you'll only pay taxes on any gains over $250,000 ($500,000 if married filing jointly).
  • If you have to pay taxes on the sold property in the country where it's located, you may be able to claim those taxes as a foreign tax credit on your U.S. return.

Reporting the Sale of a Foreign Home 

The U.S. taxes you on any income you earn, whether it's earned in the U.S. or another country. So if you owned a home or property in another country, and then sold that home for a profit, you'll need to report the sale just as you would if it were located in the U.S.

The Internal Revenue Code provides certain exclusions if the property actually served as your main home. If the house was your principal residence, and you lived in and owned the house for at least 24 out of the last 60 months (two out of the last five years) ending on the date of the sale, you can exclude $250,000 of capital gains from taxation. This amount increases to $500,000 in capital gains if you're married and you and your spouse file a joint return.

Gains on a primary residence in excess of the exclusion amount will be taxed as long-term or short-term capital gains, depending on how long you owned the property. Long-term gains apply to assets owned for more than a year and may be taxed at a lower rate.

If you can't exclude the gain, use Form 8949 to report the gain from the sale of the home. You'll also need to fill out Schedule D of Form 1040 with the info on Form 8949.

Foreign Rental Property and Taxes

There may be instances when you sell a foreign home that you don't live in as your primary residence, such as if the house was used as a vacation home, or if you rented it out as an extra source of income. If the house you sell is a rental property, you'll have to calculate your gains using the rules for selling rental properties.

Another option could be to use the rental property as your primary residence for two years leading up to the sale. This would allow you to take advantage of the $250,000 or $500,000 capital gains exclusion.


There is no exclusion for business or rental property, only for primary residences, but you can deduct costs you incur in maintaining the property and in leasing it out, and you may be able to claim depreciation. You'll need to include Schedule E of Form 1040 if you're looking to claim expenses and costs for your rental property.

Will You Owe Taxes to the Foreign Country? 

You might also have to pay taxes on the transaction to the country where the property is located, depending on the tax laws there, but you may be able to catch a tax break here as well. Those taxes can potentially be claimed as a foreign tax credit on your U.S. return.

Unfortunately, you can't claim a foreign tax credit based on any gains you excluded under the provisions of Internal Revenue Code Section 121—the $250,000 or $500,000 exclusions for the sale of your personal residence.

If you're eligible to claim the foreign tax credit, you'll need to file form 1116.

Other Considerations When Selling a Home in Another Country 

By reporting your gains and any exclusions for the sale of property in another country on your tax return, you should have sufficient documentation to show why a significant amount of money was transferred into your U.S. bank account. You should also remember to report any foreign bank accounts you might own on your tax return.

Frequently Asked Questions (FAQs)

How do I report the sale of my overseas property to the IRS?

For the year in which you sold a foreign property, you have to report the proceeds as income on your tax return using Form 8949, for the Sales and Other Dispositions of Capital Assets. You'll also need to fill out Schedule D to fill in the capital gains and losses portion of Form 1040.

Do I have to pay U.S. taxes if I sell a foreign property that I inherited?

Whether the property you own abroad is from your own purchase or from an inheritance, you are responsible for the tax liability that comes from its sale. Sales of inherited foreign properties receive the same tax treatment.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Publication 523, Selling Your Home."

  2. IRS. "Topic No. 409 Capital Gains and Losses."

  3. IRS. "Instructions for Form 8949."

  4. IRS. "Publication 527, Residential Rental Property."

  5. IRS. "Foreign Tax Credit."

  6. US Tax Help, Theodore Kleinman CPA. "Do You Pay US Taxes on the Sale of Inherited Foreign Property?"

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