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US Tax on home sale


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1 hour ago, tomgates said:

There is no reporting requirement for foreign owned properties. 

Thanks for the response. I assume your are a knowledgeable person. Are you saying that I'm not liable for capital gains tax for a foreign owned property? My US Bank is required to report large deposits to the IRS. What will they do with that information?

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You really should contact a tax attorney or, if you have an accountant in the U.S. for accurate reporting information.  If you are using a realtor, they may be able to direct you to someone actually qualified in tax reporting.  By taking advise from someone on this board, without knowing their qualifications, is dangerous.  I You don't know what their particular experience with a sale of property was, nor do you know their actual tax reporting status etc.  My 2 centavos...

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52 minutes ago, ibarra said:

You really should contact a tax attorney or, if you have an accountant in the U.S. for accurate reporting information.  If you are using a realtor, they may be able to direct you to someone actually qualified in tax reporting.  By taking advise from someone on this board, without knowing their qualifications, is dangerous.  I You don't know what their particular experience with a sale of property was, nor do you know their actual tax reporting status etc.  My 2 centavos...

My original posting was trying to locate an expert locally. I specifically said "no amateurs please"

I'm more than willing to pay a tax attorney. Just got to find one.

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Well there you go.... one 'positively NO' and one 'positively YES'.  That makes the suggestion to see a Tax Attorney rather than this Board the real winner! Now maybe someone will give you that reference like you asked.

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I strongly suggest checking out irs.gov, the authoritative website. The answers you seek are there, and remember, your tax attorney is only as good as they are. I knew several people who were told by tax attorneys to claim things that were illegal because "the IRS never audits for that."

 

Here's a pull from Topic #701, Sale of your Home:

Reporting Gain or Loss on Your Home Sale

Determine whether you need to report the gain from your home.

 You need to report the gain if ANY of the following is true.
  • You have taxable gain on your home sale (or on the residential portion of your property if you made separate calculations for home and business) and don’t qualify to exclude all of the gain.

  • You received a Form 1099-S. If so, you must report the sale on Form 8949 even if you have no taxable gain to report. See Instructions for Form 8949 and Instructions for Schedule D (Form 1040) for more details.

  • You wish to report your gain as a taxable gain even though some or all of it is eligible for exclusion. You may wish to do this if, for example, you plan to sell another main home within the next 2 years and are likely to receive a larger gain from the sale of that property. If you choose to report, rather than exclude, your taxable gain, you can undo that choice by filing an amended return within 3 years of the due date of your return for the year of the sale, excluding extensions.

 

If NONE of the three bullets above is true, you don’t need to report your home sale on your tax return.

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When you sell property or real estate in the U.S. you need to report it and you may end up owing a capital gains tax. The same is true if sell overseas property. The U.S. is one of only a few countries that taxes you on worldwide income — and gains made from foreign property sales are considered foreign income.

That means it doesn’t matter if the real estate you sold is in Austin, Texas or Auckland, New Zealand — you still have an obligation to report the gains you made on the sale. What’s more, if the gains are not excluded, you’ll pay a short-term or long-term capital gains tax on it.

When selling property abroad, different kinds of residences and properties have different kinds of reporting requirements and tax specifications. For example, selling an overseas rental property has different tax rules than when you sell an overseas primary residence.

A word of warning — you may also owe taxes to the country in which the overseas property lies, but you may be able to avoid paying capital gains taxes to both countries by claiming the foreign tax credit, which is a dollar-for-dollar credit on taxes paid to one of the countries.

 foreign residence/property qualifies as your principal residence if you lived in and owned it for at least 24 out of the last 60 months ending on the date of the property sale.

The same taxes and tax benefits that apply to selling your home in the U.S. also apply to selling your primary residence in a foreign country. That means any gain from selling your primary residence overseas is usually tax-free, as long as you meet the occupancy requirements and your gain is below these thresholds:

$500,000 – if you’re married filing jointly

$250,000 – if you use any other filing status

If your capital gain on selling that overseas property is over the limit, the excess will be taxed at the lower long–term capital gains rate. 

Reporting the sale of foreign property can be tricky, depending on where the property is, whether the income from the sale was deposited into a U.S. or foreign bank account, and other factors. For example, if the sale was made in a currency other than USD, you’ll have to go back and calculate the exchange rate at the time the sale was made.

Just like you would with the sale of a U.S. property, you may need to file IRS Form 8949 and a Schedule D (and a Form 4797 for rentals). If the income you made from the sale of your foreign property was deposited into a foreign bank, you may have to report it on a Foreign Bank Account Report (FBAR) by using FinCEN Form 114. You may also need to file FATCA Form 8938.

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36 minutes ago, sm1mex said:

There may be taxes due in México when selling a house.  ???

Of course there are. There's no "may be due" about it. The amount due, if any, depends on the profit. Hence the term "gains".

Mexico and the US have a tax treaty that prevents double taxation. So any capital gains paid in Mexico would be deducted from the capital gains owed in the US.

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20 minutes ago, mudgirl said:

Of course there are. There's no "may be due" about it. The amount due, if any, depends on the profit. Hence the term "gains".

Mexico and the US have a tax treaty that prevents double taxation. So any capital gains paid in Mexico would be deducted from the capital gains owed in the US.

Have you sold a house in Mexico? I have done it more than once and paid no tax.  so of course there may not be!

 

Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions): the percentage is calculated on a sliding scale in relation to the gain and we recommend you assume 35% as residential property sales with a gain above $250,000 pesos (c.$13,000 US dollars) will be subject to this rate.

One-time tax allowance exemption

A one-time tax allowance exemption is available under Article 92, Fraction XIX a) of Mexican income tax law that reduces the tax liability for many family homes, although you and the property must meet certain criteria to qualify for the exemption:

you must be resident in Mexico* with a Mexican tax ID (known as a RFC, or Registro Federal de Contribuyentes); and

the property you’re selling must be your primary residence; and

the land subject to the sale must not exceed three times the size of the construction on that land (measured in square meters); and

you can only claim this exemption once every three years.

The flat-rate exemption is the peso equivalent of 700,000 UDIs; the value of UDIs fluctuates and you can get current UDI exchanges rates on the Bank of Mexico website. At the time of writing, 700,000 UDIs equates to approximately $4.66 million Mexican pesos, and you can deduct this amount from the sale price if you qualify.

If the same home is properly co-titled with your spouse or other family member and they are resident in Mexico* with a Mexican tax ID, and the house is their primary residence too, you can deduct an additional 700,000 UDIs in their name.

The tax-deductible allowance is not automatic: you must qualify, and you must prove the qualification.  Talk to your Notario about how to arrange this and what you need to do to present the necessary records for proof.

Talk with a licensed accountant who is experienced in property matters about getting a RFC if you hold legal residency in Mexico but don’t currently have a RFC number and want to use this as a means to claim the tax deductible allowance when you sell your residential home.

* Mexican income tax law does not expressly state whether the foreign person selling a property must have temporary or permanent residency status to avail themselves of capital gain tax exemptions; it does, however, expressly state that the seller must be selling his/her primary residence in order to qualify for tax exemptions on capital gains. The Notary Public dealing with the matter will interpret the law; some will apply the capital gains exemptions only if the seller has residente permanente status; some Notary Public offices may apply the exemptions to foreign residents with residente temporal status.  You can read about the differences in these two residency statuses on our Mexican visas and immigration page.

Deductions allowed for capital improvements

You can deduct the costs of any capital improvements (e.g. building extensions, new flooring, swimming pools, new rooms) while you owned the property, as well as some closing costs commonly incurred when purchasing a home.  You need official receipts —in Mexico, these are known as ‘facturas’— for all services and building work to claim these allowances when you sell, so be sure to take advice from your Notary Public on how to account for these—and follow it.

Any capital improvements made using a firm or builders who didn’t issue you with facturas for the work cannot be deducted.  General maintenance and home improvements, like remodeled kitchens or new bathrooms, do not count as capital improvements.

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18 minutes ago, Mostlylost said:

Have you sold a house in Mexico? I have done it more than once and paid no tax.  so of course there may not be!

Did you actually read my post before your knee-jerk response? I said the amount due depends on the profit- if it is under the limit, then no capital gains taxes will be charged. 

It sounded to me like the poster I was responding to was uncertain as to whether capital gains tax is charged in Mexico at all, as he put all those question marks.

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4 minutes ago, mudgirl said:

Did you actually read my post before your knee-jerk response? I said the amount due depends on the profit- if it is under the limit, then no capital gains taxes will be charged. 

It sounded to me like the poster I was responding to was uncertain as to whether capital gains tax is charged in Mexico at all, as he put all those question marks.

Profit is one of the calculation methods, but not the only one.  Read the regs closely and consult your Notario. I have made huge profit and paid no tax in Mexico selling my principal residences. 

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I know a US attorney that lives here I have used but he doesn’t do any Mexican legal. He is not a Tax attorney but maybe he could give you a referral. PM me and I will give you the info. He previously advertised in the Reporter in the ad section on the next to the last pages. 

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3 hours ago, sm1mex said:

I know a US attorney that lives here I have used but he doesn’t do any Mexican legal. He is not a Tax attorney but maybe he could give you a referral. PM me and I will give you the info. 

The OP wasn't asking about "Mexican legal". He is asking about someone who can advise him of the US tax implications. I don't understand why he is being offered Mexican capital gains info here.

 

5 hours ago, Curmudgeon said:

I'm sorry I asked. I assume nobody can recommend a local US Tax lawyer, as I originally asked.

I know I have read people giving a US tax expert's info here before. Hopefully someone who knows will weigh in. 

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I think you need to go with someone like Scott.   Don't forget that, legally, U.S. citizens are required to pay tax on WORLDWIDE income, which means including Mexico.

I am sure someone like Scott can help you also in claiming foreign tax credits for the capital gains tax you will have to pay to Mexico for your home sale here. 

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There is a difference between INCOME and sales of houses. In the US, the sale of a home is reported on a 1099-S. Sale of a home in Mexico does not result in a 1099-S. Nothing is reported to the IRS. You could be opening up a can of worms by reporting a sale transaction for which there is nothing reported on the IRS's end. If you have lived in the house a minimum of 2 years and have a profit of up to $500,000us for a married couple or half of that for a single person, you would owe no tax in the US, so your conscious would be clear.

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10 hours ago, tomgates said:

There is a difference between INCOME and sales of houses. In the US, the sale of a home is reported on a 1099-S. Sale of a home in Mexico does not result in a 1099-S. Nothing is reported to the IRS. ...

Mostlylost already quoted from H&R Block's website for U.S. expats. Hopefully, H&R Block knows a thing or two or more about taxes. See this website:

https://www.hrblock.com/expat-tax-preparation/resource-center/income/real-estate/tax-implications-selling-property-abroad/

U.S. capital gains tax on selling overseas property

When you sell property or real estate in the U.S. you need to report it and you may end up owing a capital gains tax. The same is true if sell overseas property. The U.S. is one of only a few countries that taxes you on worldwide income — and gains made from foreign property sales are considered foreign income.

That means it doesn’t matter if the real estate you sold is in Austin, Texas or Auckland, New Zealand — you still have an obligation to report the gains you made on the sale. ...

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