A principal residence abroad is any property you have lived in for at least two of the last five. When you sell your principal residence, you are eligible for a gain exclusion of $250,000 USD, or $500,000 USD for married principal owners. If you don’t qualify for the gain exclusion, any gain will be considered foreign income and thus eligible for the Foreign Tax Credit. This income is not considered foreign earned income and will not qualify for the Foreign Income Exclusion.
According to IRS Publication 523:
If you own and live in just one home, then that property is your main home. If you own or live in more than one home, then you must apply a "facts and circumstances" test to determine which property is your main home. While the most important factor is where you spend the most time, other factors are relevant as well. They are listed below. The more of these factors that are true of a home, the more likely that it is your main home.
The address listed on your:
- U.S. Postal Service address,
- Voter Registration Card,
- Federal and state tax returns, and
- Driver's license or car registration.
The home is near:
- Where you work,
- Where you bank,
- The residence of one or more family members, and
- Recreational clubs or religious organizations of which you are a member.
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