Do I pay US capital gains tax if I live abroad?
Capital gains are profits realized from the sale of various investments, including real estate, vehicles, jewelry, stocks, bonds, and cryptocurrencies. The capital gains tax applies to profits made from the sale of investments, including properties, and is applicable to Americans residing abroad as per US tax laws.
Capital gains income is not usually taxable for nonresidents who have been present in the US for less than 183 days in a calendar year. However, it is taxable when the presence is 183 or more days.
If you sell your foreign property, you may be able to make a 1031 exchange (also called a like-kind exchange), in which you swap one investment property for another similar property on a tax-deferred basis. Many investors use this strategy to defer paying capital gains and depreciation recapture taxes.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
If you are living and working in the U.S. as a nonresident alien, you may be required to file a federal tax return. The Internal Revenue Service (IRS) considers you a nonresident alien if you are not a lawful permanent resident (Green Card holder) or do not pass their substantial presence test.
The capital gain income is not taxable by California because the property was not located in California. The interest income is not taxable by California because you were a nonresident of California when you received the proceeds.
A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis. Capital gains income is not usually taxable to a nonresident alien who has been present in the US less than 183 days in a calendar year, however, it is taxable at a 30% tax rate if the presence is 183 or more days.
Foreign Tax Credit
If you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
This means that American expats are subject to taxation on all of their income, including ordinary, capital gains, interest, and rental income, as well as taxes to their home country. An IRS provision, known as the Foreign Tax Credit, can assist in lowering one's U.S. tax liability.
Selling Foreign Real Estate is Taxable (Capital Gains)
Therefore, when a US person owns a foreign rental property and sells that property, the rental property must be included on the US tax return using Schedule D and applicable spot rates for currency exchange translations.
Do U.S. citizens living abroad pay taxes twice?
The US is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live or earn their income. This means that American expats are potentially subject to double taxation – once by the country where they earn their income, and again by the United States.
If you are a U.S. citizen or resident living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.
If you are a U.S. citizen and have dual citizenship in another country, you must file taxes in the U.S. The U.S. will impose taxes on you regardless of where you live and where you earn your income. Dual citizens who are living abroad may owe taxes to both the U.S. and the country in which they earn their income.
The general rule is that a naturalized citizen who voluntarily resides outside the US for an uninterrupted period of more than one year may be presumed to have abandoned their US citizenship. However, this presumption is rebuttable if the individual can provide evidence to the contrary.
183 days during the 3-year period that includes the current year and the 2 years immediately preceding the current year. To satisfy the 183-day requirement, count: All of the days you were present in the current year, One-third of the days you were present in the first year before the current year, and.
The IRS charges penalties for both late filing and late payments. If your lack of filing is willful—meaning you knowingly avoided your US tax requirements while living abroad—then more serious legal consequences may apply. Failure to File Penalty: 5% of the unpaid taxes for each month the tax return is late, up to 25%.
A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and. $59,750 for head of household.
For the tax year 2022 (the tax return filed in 2023), you may be eligible to exclude up to $112,000 of your foreign-earned income from your U.S. income taxes. For the tax year 2023 (the tax return filed in 2024), this amount increases to $120,000.
Not all countries impose a capital gains tax, and most have different rates of taxation for individuals compared to corporations. Countries that do not impose a capital gains tax include Bahrain, Barbados, Belize, the Cayman Islands, the Isle of Man, Jamaica, New Zealand, Sri Lanka, Singapore, and others.
| Taxable Income | Ordinary Federal Tax Rate | |
|---|---|---|
| $ 95,376 to $ 1,82,100 | $ 1,90,751 to $ 3,64,200 | 24% |
| $ 1,82,101 to $ 2,31,250 | $ 3,64,201 to $ 4,62,500 | 32% |
| $ 2,31,251 to $ 5,78,125 | $ 4,62,501 to $ 6,93,750 | 35% |
| Income greater than $ 5,78,125 | Income greater than $ 6,93,750 | 37% |
What is the US capital gains tax rate?
Capital gains can be subject to either short-term tax rates or long-term tax rates. Short-term capital gains are taxed according to ordinary income tax brackets, which range from 10% to 37%. Long-term capital gains are taxed at 0%, 15%, or 20%.
Depending on the details of the sale, an expat may or may not have to pay a capital gains tax. Technically, all capital gains made by a US citizen are taxable. This is true regardless of whether you are selling US property or foreign property.
2. To qualify for a lower tax rate on capital gains and dividends. If one spouse is earning all the capital gains and dividends, filing separately could mean a lower tax rate on that income. But it would depend on several factors including that spouse's income.
Capital Gains Exclusion
If it qualifies, you can exclude up to $250,000 in capital gains (up to $500,000 if married filing jointly). When you sell a foreign property and realize a capital gain, you might be able to offset them using the Foreign Tax Credit.
If you're only moving abroad temporarily, such as for a one-year work placement, it sometimes makes sense to leave your investments and manager in place. Conversely, if you are planning to live abroad for longer, it normally makes sense to transfer your investments to an expat financial planning specialist.
