It depends -
Since your husband is considered a US citizen or resident (as a green card holder), he must report all worldwide income on his US income tax return. This would include the sale of foreign real estate. However, he will only be taxed on his proportional share of any capital gain (reported in USD) on the sale of the Peruvian apartment.
The capital gain would be the amount of sales income over the basis in the property (basis being the original cost plus the cost of capital improvements to the property after purchase but before the sale). Click this link for further information about reporting the sale of a capital asset. If he had a capital loss on the sale of the property, he will not have to report the foreign sales transaction on his US income tax return.
Sale of a Second or Investment Home -
To enter this
transaction in TurboTax, log into your tax return (for TurboTax Online sign-in,
click Here and click on "Take
me to my return") type "investment sales" in the search bar then
select "jump to investment sales". TurboTax will guide you in
entering this information (see step 6 below)
Alternatively, to
enter this transaction in TurboTax Online or Desktop, please follow these
steps:
- Once you are in your tax
return, click on the “Federal Taxes” tab
- Next click on “Wages &
Income”
- Next click on “Add more
income” (then "See list of all income")
- Scroll down the screen until
to come to the section “Investment Income”
- Choose “Stocks, Mutual Funds,
Bonds, Other” and select “start’ (or “update” is you have already worked
on this section)
- The first screen will ask if
you sold any investments during the current tax year (This includes any
sale of real property held as an investment property so answer “yes” to
this question)
- Since you did not receive a
1099-B, answer “no” to the 1099-B question
- Choose type of investment you
sold - select Second Home (or everything else if investment home)
- Some basic information:
- Description –
Usually the address of the property sold
- Net Proceeds – Net proceeds
from the sale
- Date Sold – Date you sold
the property
- Tell us how you acquired the
property - purchased
- Any business or rental use? -
if no, then select personal use only (Please note, if personal use only,
you will not be able to deduct the capital loss since no capital loss is
allowed for a personal use capital asset.)
- Some Basis information
- Date Acquired
- Original cost basis
- Cost of improvements
Although the transaction needs to be reported in USD, the Internal Revenue Service has no official
exchange rate. In general, use the exchange rate prevailing (i.e., the spot
rate) when the property transactions (the original purchase, capital improvements (if any) and the sale) took place. Please refer to the following
IRS links for more information about Foreign
Currency and Currency Exchange Rates and Yearly
Average Currency Exchange Rates.
If your spouse paid foreign taxes on the this transaction,
he will be allowed an offset for these foreign taxes on his US tax
return. If he take a foreign tax credit, his US tax liability will
be reduced by the amount of taxes that he would have paid if the transaction
took place in the US (see this link Claim
Foreign Tax Credit).
