Tax strategies for selling property abroad: your complete guide

This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise US Inc. or its affiliates, and it is not intended as a substitute for obtaining business advice from a Certified Public Accountant (CPA) or tax lawyer

Selling your property within the borders of your country can be complex enough, but what happens when your property is abroad? Documentation, compliance, and taxes become even more difficult to navigate.

Luckily, we’re here to help you understand your tax obligations and make sure you maximize your tax efficiencies.

We’ll look at the following:
How to sell foreign property in 3 steps The tax implications when selling property abroad Specific regulations for US citizens selling foreign property Reporting requirements when selling property abroad Tax treaties and selling foreign property

This article has been written in collaboration with Brittany Lally, a Managing CPA at Bright!Tax US Expat Tax Services

How to sell property overseas: step-by-step

So you’ve decided to sell your foreign property—congrats! Although selling real estate can be a lucrative venture, it can also bring along a few headaches, which is why we’re laying out the steps you need to take to successfully navigate the sale.

Step 1: prepare for the sale

Before listing your property for sale overseas, it's critical to lay the groundwork for a smooth transaction. This means you should conduct thorough research on local real estate laws and regulations to understand the legal requirements and procedures you’ll need to complete when selling property in that country.

You will probably need to hire a local appraiser or real estate agent familiar with the local market to help you assess your property's worth and set an appropriate price that reflects its market value.

Once you've determined the property's value, it's time to gather all necessary documents (in order and up-to-date!) required for the sale, which typically includes the property title, deed, survey documents, and any relevant permits or licenses.

Step 2: advertise your property

When you’re ready on the technical side, it’s time to start advertising the property to potential buyers. Create a compelling listing that highlights the property's unique features and amenities—and make sure you include high-quality photos that showcase the property in the best light possible.

You can use online platforms (real estate websites, social media, and listing portals, for example) to reach more potential buyers, and consider enlisting the services of local real estate agents who have expertise in the local market and can help market your property to their network of clients and contacts.

Step 3: negotiate and seal the deal

When negotiating offers and terms of sale, stay flexible and open to compromise while also advocating for your best interests. Be prepared to negotiate on price, terms, and conditions to reach a mutually beneficial agreement with the buyer.

When a buyer accepts the offer, consult professionals (legal experts and real estate agents) to finalize the sale agreement and ensure legal compliance to protect both parties involved in the transaction.

Have your consultants review and finalize the necessary paperwork, including the sales contract, transfer documents, and any other legal requirements specific to the country where the property is located.

Working with a tax professional, too, will help you understand the tax laws the sale falls under and ensure you’ve correctly filed and paid all your sale-related taxes.

Read more about selling your property around the world—check out these guides for France, Greece, and Spain.

Tax implications of selling property abroad

Selling your foreign property does come with financial rewards, but to properly enjoy them, it’s key to understand the tax implications involved and avoid unexpected liabilities.

Here are the three main aspects to consider:
Capital gains tax Withholding tax Tax treaties

Capital gains tax

Capital gains tax¹ is a tax levied on the profit earned from the sale of a capital asset, such as real estate.

Understanding how capital gains tax is calculated in the country where the property is located is crucial for accurate tax planning.

Different countries have varying tax rates and methodologies for calculating capital gains tax, so you should familiarize yourself with the specific rules and regulations applicable in the country where your property is located.

Also, you should determine if any exemptions or deductions apply to help reduce your tax liability. Some countries offer exemptions or deductions for certain types of property sales, such as primary residences or properties held for a certain period. Consulting with a tax advisor or legal expert can help identify any available tax breaks and optimize your tax strategy accordingly.

Some factors that can impact capital gains tax include the amount of capital gain, your filing status, and whether it’s short-term or long-term capital gains.

For example, under US tax law, when selling your primary residence, you may be eligible to exclude up to 250,000 USD or 500,000 USD of the net gain, depending on whether you’re filing Single or Married Jointly.

Your tax obligations will also depend on whether the property was gifted or inherited², for example, because the capital gain is calculated differently in each case.

Withholding tax

Withholding tax is a tax that may be deducted at the source from payments made to non-residents, including proceeds from the sale of property.

US persons selling property abroad may be subject to withholding tax³ depending on the tax laws of the country where the property is located.

Working with a tax specialist can help explore various options for reducing withholding tax liabilities, such as using tax treaties or structuring the sale transaction in a tax-efficient manner to minimize your tax burden and maximize your net proceeds from the sale.

Tax treaties

Tax treaties are agreements between countries designed to prevent double taxation of income earned in one country by residents of another. These treaties may impact the tax obligations of individuals selling property abroad for foreign nationals.

Considering the impact of tax treaties between the US and the foreign country where your property is located is essential for understanding your tax obligations and optimizing your tax planning.

The IRS offers a complete list of all countries the US has a tax treaty with⁴, so you can check on your own if you can leverage this benefit when selling your foreign property.

Are there specific regulations for Americans selling property overseas?

The short answer is—yes, Americans who sell foreign property need to comply with specific regulations to ensure they’re not risking penalties. The regulations vary depending on several factors, including the country where the property is located, but are typically the following:

You are generally required to report the sale and any resulting capital gains to the IRS In some countries, you may be required to get an approval from local authorities before selling the property Some countries may impose restrictions on moving the funds from the sale back to the US In most countries, you need to have a sales contract created in accordance with local laws, sometimes even in the local language If you had a mortgage on the property at the time of sale, your tax accountant may need to consider the calculation of a foreign mortgage exchange gain on your tax return

How can you make sure to maximize your returns on selling foreign property?

Many expats find it helpful to work with a tax consultant with experience in local laws in the country where the property is located to make sure you don’t overlook any required documents or make a calculation error.

Working with tax advisors familiar with international tax laws can help you develop a tax-efficient selling strategy.

Some of these strategies may involve:
Leveraging tax treaties Identifying available exemptions or deductions Exploring options for minimizing capital gains tax liabilities Monitoring currency exchange rates to choose the best timing for sale Ensuring full compliance to avoid IRS penalties and interest

Tip: Use Wise’s Rate Tracker to stay in the know!

Do you need to report the sale of foreign property to the US government?

Yes—even if you sell property outside the US, you’re still required to report the sale to the IRS. Depending on your specific case, you may need some (or all) of the following forms:

FBAR

FBAR stands for Foreign Bank Account Report, and you will use it to report any foreign financial account in which you have $10,000 or more during one calendar year.

If you sell foreign property and deposit the money in a foreign account, you will likely need to file this form with the IRS.

Form 8938

Form 8938 (Statement of Specified Foreign Financial Assets) is used to report foreign financial assets that exceed the reporting threshold. For those filing Single, it’s 300,000 USD at any time during the year and 200,000 USD on the last day of the year.

When filing Married Jointly, the thresholds are 600,000 USD at any time during the year or 400,000 USD on the last day of the year.

Form 8949

Form 8949 is used to report sales and exchanges of capital assets, according to the IRS. This form helps consolidate all capital gains and losses from the sale you’ve made, both short-term and long-term (less than 12 months after becoming the property owner or more, respectively).

Schedule D

This form is similar to 8949, with the goal of summarizing and reporting the net gain or loss of capital sales on the same tax return where Form 8949 is filed.

Selling property abroad FAQs

Do I have to pay tax in the US if I sell my house in the UK?

Whether you have to pay tax in the US for selling your house in the UK depends on various factors, including your tax residency status in the US, if you can claim Foreign Tax Credit (FTC)⁵, and any applicable tax treaties between the two countries.

Consult with a tax advisor familiar with international tax laws to assess your specific situation and determine your tax obligations accurately.

What documents are needed to sell a property in the UK?

To sell a property in the UK, you typically need to prepare the title deeds, property information form, fixtures and fittings list, Energy Performance Certificate (EPC)⁶, and various other legal documents related to the sale.

These documents play a critical role in the conveyancing process and are necessary to ensure a smooth and legally compliant property transaction.

What happens when a US citizen sells property in Canada?

When a US citizen sells property in Canada, they may be subject to capital gains tax in both countries.

It's essential to understand the tax implications and consider seeking professional advice to navigate the complexities, as tax treaties between the US and Canada can affect the tax treatment of the sale, as well as whether you were renting the property and other factors⁷.

Can you avoid capital gains tax by buying another house in the US?

In the US, you may be able to defer capital gains tax on the sale of a house in some cases.

For example, by using the 121 home sale exclusion after selling your primary residence or by reinvesting the proceeds into another qualifying property within a specific timeframe, using provisions such as a 1031 exchange⁸.

However, these exchanges are only available for US-US exchanges, not for property overseas.

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Sources:

1. Bright!Tax - Capital gains tax
2. Bright!Tax - Gifted vs inherited property
3. Bright!Tax - Foreign tax property
4. IRS - Income treaties
5. Bright!Tax - Foreign tax credit
6. EPC Certificate
7. Bright!Tax - Foreign rental income
8. Investopedia - 1031 exchanges

Sources checked on 03.12.2024