Capital gains exclusion for foreign home

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Dear Tax Talk,
I have sold a home abroad after living in it for five years and then emigrated to the U.S. I was already a permanent U.S. resident by the time of sale. Do I owe Uncle Sam any tax for the profit, which was around $100,000?

Regards,
— Olle


Dear Olle,
You can exclude up to $250,000 of the gain on the sale of your main home if you meet the ownership and use test.

Also, to claim the exclusion during the two-year period ending on the date of the sale, you must not have excluded gain from the sale of another home.

To pass the ownership and use test means that during the five-year period ending on the date of the sale, you have to meet two main criteria.

You must have:
Owned the home for at least two years (the ownership test).
And lived in the home as your main home for at least two years (the use test).

The law does not differentiate whether the home is in a foreign country. It also does not consider whether you were a resident of this country during the period of ownership and use. For example, if a U.S. citizen resided in Paris for two of the last five years, that home could be considered his or her personal residence and qualify for gain exclusion. Accordingly, so long as within two of the last five years ending on the date of the sale, you used and owned the foreign-country home as your principal residence, you will not owe tax on the $100,000 gain.

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