Must I pay Foreign Exchange Gains if selling house abroad? I got the house while living abroad all my life. Later on, I moved to the US, and now i would like to sell

[Taxer]

I bought a house in 2005 in europe as a european living in that county all my life. In 2014 I get a work VISA (L1) and move to the US. After 2 years I want to sell the house abroad. Since I sell the house within 3 years from living there, i should pay no capital gains (below $250,000). A friend of mine tells me that I have to pay tax because there's a gain from the exchange rate - the value of the USD has gone up since I got the house. I don't get that - since I didn't use $ to pay for the house, and I don't get dollars when I sell. That will be in that european contrys currency. So actually this is really bad, since the dollar is so much worth. So is this really true?

[pk]

Are you a US citizen / permanent resident ( green card ) / resident for tax purposes  or ... ?

In the case of citizens and residents US taxes you on world income and  in US$. Thus  if you dispose a property abroad,  you report all the details ( acquisition cost, improvents, depreciation, sales expenses  and sales price etc. ) in US $ of the day ( or yearly average exchange rate published by the US Treasury ).

If there is more on this , please add to this  thread and one of us will comem back and help you

[Taxer]

Thanks. So I am a legal alien on a L visa. But considered a taxable resident. I get that about reporting it to IRS. Thats fine. It thing about paying tax of a Exchange Rate Gain. Would make sense if i was living in the US when i bought the house abroad. But i bought while i was living abroud (my home country and before moving to the US). So why is there a Exchange Rate Gain there? Thanks a lot for all the answers.

[Taxer]

@pk - Do you have any updates on this? - After I left my comment? Looking very much forward to hear what you think on this.....

[pk]

well , yes and no.  I say yes because this matter of exchange rate caused loss/gain is dealt at length in section 986 and 987 of the  IRS Regs -- though the focus there is on qualified Branch units and not on individual tax payers. One would hope the same logic would apply.  Going through the all the congressional reports, IRS and industry comments etc.  what comes out ( in general ) :
(a)   Exchange gain or loss is recognized upon a remittance,
(b)   Both .... earnings and .... capital can give rise to exchange gain or loss under section 987
(c)   The currency gain or loss taken into account under section 987 is only the economic gain or loss “inherent in” the assets and liabilities of a QBU.

Therefore my conclusion is that the extra tax liability that you incurred due to exchange rate fluctuation, is real  ( not notional ) and must be recognized. Thus there is no relief that you can request/  assert on this.  My basis for this position  are  item (a)  and  "economic gain or loss “inherent in” in (c) above. I am sorry this does not help you and it does not seem fair  from certain perspective.  My apologies

[ben-cleaver]

I wondered if there was any further outcome to this and way to offset currency gain since I have similar case. Thanks

[heatherlizamore]

As far as I know you cannot offset this currency 'gain' if you're resident in the US. We have got advice from a number of people on this and it seems punitive but alas it is what it is.

By question is this - we've been in the US as L1s/L2s for 2.5 years. We plan to remortgage as soon as we get home (which we have deferred because we did not want to be liable for this tax). Once we are resident in the UK again, I assume we will no longer be liable in the US for any 'fx' gain when we do remortgage, or if we are filing a US tax return that year, will the IRS still lay some sort of claim to it (we would have been resident in the US for 7 or so months of the year), but the remortgage will only take place once we're UK residents again. Thanks.