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playa1818-tax
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Hi, I was living in Mexico during 2016 but I sold my home in Washington state. How should I answer the questions about which state I lived in? Also, I am retired/unempl

 
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GeoffreyG
New Member

Hi, I was living in Mexico during 2016 but I sold my home in Washington state. How should I answer the questions about which state I lived in? Also, I am retired/unempl

As a US citizen now residing another country, please remember that the United States continues to tax you on all of your worldwide income (one of the few countries that does so for expats).  Thus, as you probably know, you have to report, and pay taxes upon, your worldwide income, as long as you retain your US citizenship . . . even if you permanently live abroad in Mexico.

With respect to Washington state, however, since there is no income tax there, you really don't need to worry about it.  That is, you will have no tax return filing obligation there, and you can simply answer all of the relevant TurboTax questions to indicate that you resided abroad, or in a foreign country, during the tax year.

In order to accomplish this mechanically in TurboTax -- that is to force the program to only tax your income on a federal level -- simply indicate that your state of residence is "Foreign or US Possession" in the Personal Information section of the program, at the very beginning.  This way you will only be prompted to file a federal tax return.

When done correctly it should look something like the screen-capture images below this text; simply click the images to open.  Note that the address of an historic central Post Office in Mexico City was used to illustrate how to enter a Mexican postal address format in TurboTax.  However, you should obviously insert your own current mailing address there instead.

Depending on the amount of capital gain, if any, realized upon selling your Washington home, this may or may not even be a reportable tax event (and it won't be, if your gain falls under the Section 121 "exclusion of gain on sale of a personal residence" . . . the TurboTax program itself will guide you here).

Also, please don't forget any annual foreign financial account disclosures that you may have to file, if you keep a bank account or other financial account outside of the US.

In fact, there are two separate disclosure forms that may be required for US citizens with an account at a Mexican (or overseas) bank; each also has different reporting rules.

One is known as IRS Form 8938, and can be attached to the relevant yearly Form 1040 tax return (which you could file for free using TurboTax, if you have no taxable income).

The other is known as FinCen Form 114, which can only be filed via the internet.  The following Internal Revenue Service webpage describes them in some detail, and provides their dollar value reporting levels (called the "Reporting Threshold"):

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

 

Form 8938 is included in TurboTax, as indicated; whereas FinCen Form 114 is not included with TurboTax, and you would need to access that reporting webpage separately.  Note that you can get to the FinCen reporting internet site directly through the above IRS link (a link within a link, essentially).

Thank you for asking this important question, and we hope that you will enjoy living abroad.

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1 Reply
GeoffreyG
New Member

Hi, I was living in Mexico during 2016 but I sold my home in Washington state. How should I answer the questions about which state I lived in? Also, I am retired/unempl

As a US citizen now residing another country, please remember that the United States continues to tax you on all of your worldwide income (one of the few countries that does so for expats).  Thus, as you probably know, you have to report, and pay taxes upon, your worldwide income, as long as you retain your US citizenship . . . even if you permanently live abroad in Mexico.

With respect to Washington state, however, since there is no income tax there, you really don't need to worry about it.  That is, you will have no tax return filing obligation there, and you can simply answer all of the relevant TurboTax questions to indicate that you resided abroad, or in a foreign country, during the tax year.

In order to accomplish this mechanically in TurboTax -- that is to force the program to only tax your income on a federal level -- simply indicate that your state of residence is "Foreign or US Possession" in the Personal Information section of the program, at the very beginning.  This way you will only be prompted to file a federal tax return.

When done correctly it should look something like the screen-capture images below this text; simply click the images to open.  Note that the address of an historic central Post Office in Mexico City was used to illustrate how to enter a Mexican postal address format in TurboTax.  However, you should obviously insert your own current mailing address there instead.

Depending on the amount of capital gain, if any, realized upon selling your Washington home, this may or may not even be a reportable tax event (and it won't be, if your gain falls under the Section 121 "exclusion of gain on sale of a personal residence" . . . the TurboTax program itself will guide you here).

Also, please don't forget any annual foreign financial account disclosures that you may have to file, if you keep a bank account or other financial account outside of the US.

In fact, there are two separate disclosure forms that may be required for US citizens with an account at a Mexican (or overseas) bank; each also has different reporting rules.

One is known as IRS Form 8938, and can be attached to the relevant yearly Form 1040 tax return (which you could file for free using TurboTax, if you have no taxable income).

The other is known as FinCen Form 114, which can only be filed via the internet.  The following Internal Revenue Service webpage describes them in some detail, and provides their dollar value reporting levels (called the "Reporting Threshold"):

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

 

Form 8938 is included in TurboTax, as indicated; whereas FinCen Form 114 is not included with TurboTax, and you would need to access that reporting webpage separately.  Note that you can get to the FinCen reporting internet site directly through the above IRS link (a link within a link, essentially).

Thank you for asking this important question, and we hope that you will enjoy living abroad.

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