How to report sale property abroad?

[andysechler]

My wife, who is UK citizen (and US citizen), sold a condo she has owned for years this past year. She is paying UK capital gains tax on the sale of the condo, profit with whom she shared with her brother. We moved some of the profit to US to help put down payment on our current home. How should we handle this situation? How do we claim this on our taxes here? I assume we won't have to pay double tax, but I want to make sure we don't make any big mistakes. Thanks.

[DS30]

If you are a US citizen or resident, you are required to file a US tax return for income from all sources both domestic and foreign. Therefore, you will need to report the 2015 sale of this UK Condo (converted into US dollars) on your tax return as the sale of a capital asset. To know the actual amount of the capital gain or loss on this sale, you will need to know not only your sale's proceeds (in USD) but also your basis (in USD). Your basis is usually the purchase price plus any capital improvements made to the property (all in USD). (If she was only a half owner of the property, just half all the sales and basis information)

The Internal Revenue Service has no official exchange rate. In general, use the exchange rate prevailing (i.e., the spot rate) when you receive the property, made any capital improvements and sold the property. Please refer to the following IRS links for more information about Foreign Currency and Currency Exchange Rates and Yearly Average Currency Exchange Rates

To enter this transaction in TurboTax, log into your tax return and type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". 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:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
6. 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)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. On the next screen you will enter the sales information as follows
1. Description – usually the address of the property sold
2. Date Sold – Date you sold the property
3. Date Acquired – Date you the property
4. Sales Proceeds – Total amount received for the property (in USD)
5. Cost Basis – cost plus any capital improvements (in USD).
6. Adjustment Amount – leave this box blank (see attached screenshot #2)

Click this link for further information about reporting the sale of a capital asset

If you paid foreign taxes on the this transaction, you will be allowed an offset for these foreign taxes on your US tax return.  If you take a foreign tax credit, your US tax liability will be reduced by the amount of taxes that you would have paid if the transaction took place in the US (see this link Claim Foreign Tax Credit). If you take a foreign tax deduction on Schedule A, you will be allowed to deduct the full amount of the foreign taxes paid but you will need to itemize (which could limit your ability to take the full deduction). The TurboTax software will help you determine which of these options will lower your overall tax liability.

Currently the maximum capital gains rate in the US is 20%. Depending on your tax bracket, you may owe more than 20% due to such factors as Alternative Minimum Tax (AMT) and the additional Net Investment Income Tax (NIIT) of 3.8%

Please note : If you have foreign bank accounts, you may be required to file a Report of Foreign Bank and Financial Accounts (FBAR) if are a US citizen or resident and:

1. you had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

To be directed to the US Treasury Government Website to prepare a Report of Foreign Bank and Financial Accounts, click FBAR (TurboTax does not support this form)

[sunil_kuchipudi]

Do not believe this is accurate any more ( for sale of business real estate) ... Once you enter this section, TT will warn you to report sale of rental property in the Sale of Business Asset.  At least that is what I am seeing now in 2019 TT

[KarenJ2]

Yes it should be reported as sale of rental property if the property was rented.    You didn't mention at first that it was rental property.  

Please note that the IRS requires that the gain is calculated by translating the purchase price using the exchange rate on the date of purchase, the cost of capital improvements using the exchange rate on the date the improvements were made and the exchange rate to USD on the date of the sale. 

There is a secondary calculation if you had a foreign mortgage on the home  you sold.   

The Exchange Rate Gain from paying off a mortgage denominated in a foreign currency is treated as a separate transaction and is calculated by translating the amount of the loan using the exchange rate at the time the loan was originated and the exchange rate at the time the loan was paid off. The resulting “gain” is taxable as “ordinary income”  

[alerobdon]

Additional Question on this

We moved to the US in 2018 and sold our UK home in 2019.  

I understand that we do not pay US tax on the proceeds of the sale as:

principal residence exclusion if owned and occupied the house for at least 2 out of 5 years from the date of sale.  and if the proceeds of the sale are less than $500K, (which they are)

However how do we report this and the potential exchange gain during the period of ownership

[SusanY1]

If you meet all of the qualifications to exclude the gain from tax, you do not need to report the sale on your U.S. tax return unless you were given a Form 1099-S, which since the transaction was outside of the U.S., I imagine is not the case. 

You can simply ignore the transaction if it is fully excluded from tax by reason of being under $500,000 in gain (for a married couple filing jointly) and it was your main home (primary residence) for any 2 of the proceeding 5 years. 

@alerobdon

[chamanirad]

What if the proceeds of sale is more than 500,000$?

[DaveF1006]

It doesn't matter if the proceeds were more than $500,000 because the proceeds were shared by your wife's brother. She would just report her 1/2 of the proceeds and 1/2 of the basis amount on the condo to report in Turbo Tax.

If your wife met the ownership and use test, capital gains will be excluded as SusanY1 has mentioned. To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

• Owned the home for at least two years (the ownership test)
• Lived in the home as your main home for at least two years (the use test)

@chamanirad

[marudigi]

This is a great thread and it relates to the issue I'm having with our taxes. My husband sold his house abroad, which he had since 2010. He (nor I) have lived in that home for the past 8 years, since we came to the US. He was not renting the home so I cannot include that as a rental property and he already paid taxes on it in Uruguay (where the property was and was sold). He had gains but they were around 50k (before taxes), so nowhere near the 500k I'm seeing here.

I'm having trouble finding where I should include this income. If I do it as the sale of a second home, there is no place to indicate it happened abroad, so we get double taxed. If I go to the foreign tax credit area, it's all about other kinds of income, not the sale of a property.

I am afraid of not reporting it because I don't want to get into trouble, so I'm completely lost. Do you have any advice?

Thanks!

[DaveF1006]

You would enter this as a sale of a second home in Turbo Tax under federal>wages and income>less common income>Sale of home(gain or loss). You will pay capital gains on the $50K unless there were exceptions involved. This is covered in the Turbo Tax interview as you complete this section. in the end, the taxable income will show as a capital gain on Schedule D of your return.

Now for the foreign tax credit if you paid taxes to Uruguay on this sale. 

• Go to wages and income>deductions and credits>
• estimates and other taxes paid>foreign taxes. 
• Answer all of the questions that are asked until you get to the Foreign Tax Credit Worksheet. In the next screen when it asks For the income type, choose passive income.
• Next screen will have you add a country, here you will select Uruguay.
• Next it will ask Other Gross income-Uruguay. Describe this as personal residence  and then the amount of the gain. This is informational only add will not add to taxable income.
• Then continue through the screen. Don't enter a total for foreign losses for Uruguay because this may reduce the amount of the credit. 
• Now you will enter the amount of foreign taxes paid to Uruguay. Enter this under Foreign taxes paid on other income. You will not need to enter anything additional in the program but you will need to continue through the screens until you are informed what your Foreign Tax Credit is.
• Now continue through the the rest of the screens until the program informs you what your foreign tax credit is. 

@marudigi

[abirkmanis]

The "Sale of home" section specifically warns it is ONLY to be used for the main residence, and NOT for other property.

[AbrahamT]

Here's where you will enter the sale of your second home

Type in the magnifying glass to the right  "sale of second home"

then hit "Jump to sale of second home"

when you get to the description box, type in sale of second home like this

and will seamlessly flow to forms like this

See how this works for you and let us know what's happening.

Good luck!

at the end of the day, this information will flow seamlessly to the forms like this

[cc0304]

Great thread, super helpful already.

I’m in a similar situation - I’m a resident alien and recently sold a foreign property under my name (a secondary home, not primary residence, not rental) but 100% capital gains went to my parents. Do I still need to report it on my tax return? 

[MarilynG1]

If the property was in your name, then you would report the Capital Gains on your return from the property sale.  Depending on your income, your capital gains may not be taxable.

Here's more info on How Capital Gains are Taxed. 

If you chose to 'gift' the funds to your parents, you may need to file a Gift Return also, depending on the amount of the gift. 

You won't owe tax, but are reporting to the IRS towards the lifetime limit amount.

@cc0304 

[cc0304]

Thank you! If the sales contract was signed in December 2023 and the sales tax was paid at the same time but the money was received from the buyer in January 2024, which year should I file it under?