Resident alien selling property abroad

[antdlc]

Hi there, I have Spain citizenship and I own real state property along with my wife in Spain, that property used to be our primary home back when we lived there. No income has been gained out of it, now we are planning on selling it and some US taxation questions arise. As a comment, I have 3 years of paying taxes here. 

Before the queries, I have to add I have never reported this property on my tax return as I was told that was unnecessary. I pay taxes for the empty house in Spain, and Spain and US are holding an existing tax treaty among them. 

- Do I have to report the property on my previous tax returns?

- Once we get it sold, and after we paid taxes upon the gains, do I have to report the selling here in US as well?

- After that, the idea is to tranfer all that money to our bank account here in US, do I have to report it, and when?

Thanks in advance

[Vanessa A · Accepted solution]

Do I have to report the property on my previous tax returns?

No, if it was not an income producing property, you do not need to report it on your previous tax returns.  You will only report the home when you either receive rent from it or when you sell it. 

Once we get it sold, and after we paid taxes upon the gains, do I have to report the selling here in US as well?  Yes, if you are filing as a US Resident, then you would need to pay tax on the gains, if it does not qualify for the home sale exclusion.  If you have not lived in the home for over the past three years it would not qualify as the home would have had to be your main home at least 2 out of the last 5 years in order to exclude the gain up to $500,000 for married filing jointly. 

After you paid taxes on the gain in Spain, you may be eligible for a tax credit on your US return. 

After that, the idea is to transfer all that money to our bank account here in US, do I have to report it, and when? Yes, if you have more than $10,000 in a foreign bank account you will need to report that.  If you already have that, then you should be reporting it now as well. This is reported generally when you file your tax return, but is due on the last day to file your taxes which is usually April 15th (April 18th this year) 

If the money is just immediately transferred from the buyer into your US account, this would not require the foreign bank reporting.

[antdlc]

Thanks for replying so promptly Vanessa.

Just a couple of minor questions/comments.

- We live here since 2017, so we don't qualify for the home sale deduction, but, I heard there can be some exceptions on the 24 months ownership if you were forced to move due to a work-related move.

- We have a bank account there with less capital than $10K, but once the property gets sold we want to get the money transferred to our account there, only in case we need it here we would transfer it to the US.

Edited: - What about the tax treaty between US and Spain? I am sure will first get taxation on the gains there, still need to tax gains here?

Thanks

[antdlc]

Replying to my own question (please correct me if I'm wrong):

- We live here since 2017, so we don't qualify for the home sale deduction, but, I heard there can be some exceptions on the 24 months ownership if you were forced to move due to a work-related move.

According to the IRS website  HERE  my case would qualify as a partial exclusion of gain since I had to move into the US because of my company in Spain.

On top of that, and because of the current worldwide economic recession, considering the current Dollar to Euro value, I  could incur a loss of capital instead of a gain. If this would ever happen, do I have to report that loss on my yearly taxes?    

[JulieS · Accepted solution]

Yes, you are correct that you may apply for a partial exclusion of gain if you moved due to a new work location. If you need to exclude the gain, you do need to report the transaction.

Loss on the sale of your home is not deductible, so if the transaction is not a gain, you don't have to report it. 

Click here for more on the partial exclusion. 

You may be able to claim a Foreign Tax credit for the taxes you pay to Spain on the sale. Look for Form 1116 to claim the credit.

[antdlc]

One last question, is TurboTax capable of applying those partial exclusions on gains due to the work related move? I couldn’t figure it out myself yet.

Thanks

[DianeW777]

Yes, if you walk through the questions about your home sale, and if there is a gain, then TurboTax will calculate the exclusion amount based on your responses to the questions.

• Start the process by using the search (upper right) > type home sale > Click the Jump to... link and begin the sale of home section.
• You will come to the screens below.