Am I required to pay tax on sale of foreign property?

Q: I sold my house in my home country of Guatemala last year for around $90,000. The buyer paid me half of the sales price by wire transfer to my United States bank account. The other half was paid to me to an account I have in Guatemala. Do I have to report the sale on my US tax return?

Citizens and non-citizens may both have to pay tax on the sale of foreign property

A: United States citizens are supposed to report any income they make anywhere in the world. If, however, you’re not a United States citizen, you might only need to report income that you make in the United States. That’s generally the way it works.

It might not matter to you whether you are a US citizen or not. You sold the home in Guatemala for $90,000. The real question is, did you have a profit on the sale of the home? The IRS will only tax you on the profit from the sale of the home.

Calculating the tax basis of U.S. or foreign property

Let’s say you purchased the home for $80,000 and had purchase and sale costs of $10,000. You would not have any profit on the sale. But if you purchased the home for $50,000 and later sold it for $90,000 and had those same $10,000 in costs, you’d have a profit of $30,000. A U.S. citizen would have to show that profit on their U.S. tax return and pay tax on the profit.

A non-U.S. citizen may not be required to pay taxes on any of that profit. Non-U.S. citizens pay income on the income they earn in the United States. If the home was located in the United States and you had a profit from the sale. We’d say that you’d have to pay taxes to the IRS. 

Different real estate types get treated differently by IRS

Let’s say you are a U.S. citizen and sell that property. Different types of real estate may get treated differently by the IRS. If it was a rental property, and you declared income from the property over the years and took depreciation, and you’re over a certain income threshold, then you may owe tax.

We don’t have enough room here to go over the details of different scenarios, such as whether the home was a primary residence, inherited home, vacation home, rental property for part of the time or entirely rental all of the time. Each scenario may trigger different tax rates and rules.  

Use a tax preparer who understands who has to pay tax on sale of foreign property

You can discuss the particulars of your situation with an enrolled agent, tax preparer or other person familiar with your situation. That person should have deep knowledge of IRS rules for foreign income and real estate sales in foreign countries.