Why does the exchange rate matter twice?

The cost is translated at the rate on the purchase date and the proceeds at the rate on the sale date. A currency that moved against the dollar over the years you owned the home produces a U.S. gain or loss of its own, separate from anything the local tax office sees — and the exclusion applies to that dollar figure, not to the local-currency one.

I repaid a mortgage in euros, francs or pounds when I sold. Does that matter?

It can. Repaying a loan denominated in another currency is itself a currency transaction under IRC §988: if the dollar cost of repaying it was lower than the dollar value you borrowed, the difference can be ordinary income, and the principal-residence exclusion does not cover it. It needs the loan amount and the exchange rates at drawdown and repayment.

Does the country's tax on the sale offset the U.S. tax?

Tax the country of sale charges on the gain is generally creditable against the regular U.S. income tax on the same gain on Form 1116. It is generally not creditable against the 3.8% net investment income tax. Where the country exempts a principal residence — as many do — there is no foreign tax to credit, and the U.S. tax on any excess lands in full.

Does this page compute my gain or tell me whether I qualify?

No. Each line comes back as may apply, not indicated or unknown, with the fact that would settle it. The dollar gain, the exclusion and any currency result are computations for a return, prepared from the documents; the screen tells you which of them are in play.

Free screen · selling a home abroad

Selling your home abroad: the four U.S. rules that meet at once

The country you live in sees one sale. The United States sees a gain in dollars at two exchange rates, a fixed exclusion with a two-year test, a mortgage that may have produced its own currency gain, and a 3.8% tax on the excess. Answer eight questions and see which of those may apply to your sale — and what would settle each.

Screen my sale

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Are you a U.S. citizen or green-card holder?

What was the property to you?

How long did you own it?

In the five years before the sale, how long was it your main home?

The exclusion needs two years of use as your main home in that window — not necessarily consecutive.

Roughly, the gain in U.S. dollars

Sale price minus what you paid and improved, each converted at its own date's rate. A band is enough.

Your U.S. filing status for the year of sale

Was there a mortgage, and in which currency?

A loan in the local currency repaid on the sale is a separate question from the house itself.

When did, or will, the sale close?

Where is the property?

Answer the questions to see what may apply

Each line comes back as may apply, not indicated or unknown, with the fact that would settle it. Nothing here computes a figure.

Educational screening only, not tax or legal advice. Nothing here computes your gain, your exclusion or any currency result; each line names the fact that would settle it.

What the screen looks at

Four rules, one sale

The exclusion. IRC §121 lets a principal residence shed up to $250,000 of gain — $500,000 on a joint return where both spouses meet the use test — when you owned the home and lived in it as your main home for at least two of the five years before the sale. A second home or a rental does not qualify; a home that was rented for a period qualifies only for the part that was not, and the depreciation for the rented years comes back on sale.

Two exchange rates. The cost is translated at the rate on the purchase date and the proceeds at the rate on the sale date. Over a decade of ownership the currency usually moved, and that movement is a U.S. gain or loss of its own. It is the dollar gain the exclusion is measured against.

The mortgage. A loan in the local currency repaid on the sale is a separate transaction under IRC §988. If the dollars needed to repay it were fewer than the dollars it was worth when drawn, the difference can be ordinary income — and the exclusion does not reach it. This is the line people most often discover after the fact.

The excess. Gain above the exclusion is long-term capital gain and, above the income threshold, net investment income at 3.8%. Tax the country of sale charged is generally creditable against the regular income tax on the gain, and generally not against the 3.8%; where the country exempts a principal residence, there is nothing to credit.

Questions people ask about selling abroad

Is the sale of my home abroad taxable in the United States?: A U.S. citizen or green-card holder reports a sale abroad the same way as one at home. Up to $250,000 of gain ($500,000 on a joint return) on a principal residence may be excluded when you owned it and lived in it as your main home for at least two of the five years before the sale. Gain above that — and the whole gain on a second home or a rental — is long-term capital gain in the United States even where the country of sale taxes nothing.
Why does the exchange rate matter twice?: The cost is translated at the rate on the purchase date and the proceeds at the rate on the sale date. A currency that moved against the dollar over the years you owned the home produces a U.S. gain or loss of its own, separate from anything the local tax office sees — and the exclusion applies to that dollar figure, not to the local-currency one.
I repaid a mortgage in euros, francs or pounds when I sold. Does that matter?: It can. Repaying a loan denominated in another currency is itself a currency transaction under IRC §988: if the dollar cost of repaying it was lower than the dollar value you borrowed, the difference can be ordinary income, and the principal-residence exclusion does not cover it. It needs the loan amount and the exchange rates at drawdown and repayment.
Does the country's tax on the sale offset the U.S. tax?: Tax the country of sale charges on the gain is generally creditable against the regular U.S. income tax on the same gain on Form 1116. It is generally not creditable against the 3.8% net investment income tax. Where the country exempts a principal residence — as many do — there is no foreign tax to credit, and the U.S. tax on any excess lands in full.
Does this page compute my gain or tell me whether I qualify?: No. Each line comes back as may apply, not indicated or unknown, with the fact that would settle it. The dollar gain, the exclusion and any currency result are computations for a return, prepared from the documents; the screen tells you which of them are in play.

By Danilson Ramos · Founder, Atamatax

Authorities cited

IRC §121 — IRC §121 — Exclusion of gain from sale of principal residence ($250,000 / $500,000)
IRS Publication 523 — About Publication 523 — Selling Your Home (the ownership and use tests, the exclusion, reporting the sale)
IRC §988 — IRC §988 — Treatment of certain foreign currency transactions (a repaid foreign-currency mortgage can produce ordinary gain)
IRC §1411 — IRC §1411 — Net Investment Income Tax (3.8%)
IRS Form 8960 — About Form 8960 — Net Investment Income Tax (Individuals, Estates, and Trusts)
IRS Form 1116 — About Form 1116 — Foreign Tax Credit (Individual, Estate, or Trust)
IRC §901 — IRC §901 — Taxes of foreign countries and U.S. possessions
IRS · yearly average exchange rates — IRS — Yearly average currency exchange rates

Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.

Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.