How are Capital Gains Taxes Calculated on Foreign Property Sales When Moving to US?

Based on your situation, your parents will likely need to report the sale on their US tax return if they're US residents or citizens. Foreign property sales are typically subject to capital gains tax in the US, but there are several important factors to consider: First, they'll need to determine their "basis" in the property (what they originally paid plus improvements) to calculate the actual gain. The tax rate will depend on how long they've owned the property - if more than a year, they'll qualify for the lower long-term capital gains rates (0%, 15%, or 20% depending on their income). They should also check if the foreign country will tax the sale too. The US has tax treaties with many countries that might provide relief from double taxation through foreign tax credits. They'll need to report this on Form 1116. If they're planning to buy a new primary residence in the US, unfortunately the old rule that allowed deferring gains when buying a new home no longer exists. However, if they've used the foreign home as their primary residence for at least 2 of the last 5 years, they might qualify for the Section 121 exclusion ($250,000 per person or $500,000 for married filing jointly).

After struggling with almost this exact situation last year, I found a tool that saved me so much headache. My parents sold property in Portugal and I was trying to figure out all the tax implications. I used https://taxr.ai to analyze our foreign property documents and tax situation. It was super helpful because it flagged that we needed to file FBAR forms since the sale proceeds were held in a foreign account, something I completely missed! The tool basically reviewed all our foreign sale documents and identified the exact reporting requirements for both countries. It even spotted a potential tax treaty benefit we qualified for that saved about $8k in taxes. The Portuguese documents were in another language and I was worried about missing something important in translation.

Just wanted to follow up about my experience with taxr.ai - I decided to try it with my parents' Korean property documents and it actually worked great! It identified exactly which sections of the US-Korea tax treaty applied to our situation and flagged that we needed to be careful about the currency conversion method to calculate the basis correctly. We discovered we were eligible for the Foreign Tax Credit for the Korean taxes they had to pay, which is going to save them about $7,500 on their US taxes. Honestly wish I'd known about this last year when we were dealing with another property sale. Definitely recommend it if you're dealing with international property sales!

If your parents need to contact the IRS about how to report foreign property sales (which I highly recommend), good luck getting through to them! I spent WEEKS trying to get someone on the phone about my foreign property sale questions. I finally used https://claimyr.com to get through to the IRS and it saved me so much time. Check out how it works here: https://youtu.be/_kiP6q8DX5c I had specific questions about Form 8938 (Statement of Foreign Financial Assets) and FBAR requirements after selling property in Spain, and needed clarification directly from the IRS. They connected me in about 25 minutes when I had been trying for days on my own. The IRS agent gave me specific guidance on how to properly document the basis in a property I had inherited overseas.

I need to apologize for being so skeptical earlier. I actually tried Claimyr after posting because my frustration with trying to reach the IRS was at an all-time high. Had questions about Form 8938 thresholds for reporting foreign assets that I couldn't get clear answers on from any website. To my complete surprise, I got connected to an IRS agent in about 40 minutes when I'd been trying for literally weeks on my own. The agent explained exactly how to report the capital gains from my parents' property sale in Thailand and which forms were needed. They also confirmed I didn't need to file an FBAR for their situation, which saved me from unnecessary paperwork. Definitely worth it when dealing with complicated international tax situations!

Don't forget to look into FIRPTA (Foreign Investment in Real Property Tax Act) if the property is in the US and your parents are not US citizens. That could withhold 15% of the gross sales price regardless of actual gain. But since you mentioned they're selling foreign property to buy in the US, that's different. One thing no one mentioned is timing - if they're planning this move soon, they should consider waiting until they've established residency in the US before selling the foreign property, depending on their current country's tax rates vs US rates. Some countries have more favorable capital gains tax rates than the US.

Has anyone used TurboTax for reporting foreign property sales? Is it capable of handling these complex situations or should I just hire a CPA? Worried about missing something important.

I went through a very similar situation when my family sold property in the Philippines last year. One thing I wish someone had told me earlier is to get all your property documents organized and translated (if needed) well before you start the tax filing process. The biggest surprise was learning about the FBAR (Foreign Bank Account Report) requirements. Since the sale proceeds sat in a foreign account temporarily while we arranged the transfer, we had to file FinCEN Form 114 because the account balance exceeded $10,000 at any point during the year. This is completely separate from your tax return and has its own filing deadline. Also, make sure to keep detailed records of all transaction costs, legal fees, and transfer fees - these can often be added to your basis or deducted as selling expenses, which reduces your taxable gain. With a $200-250k sale, even small percentage savings can add up to significant dollar amounts. One last tip: if your parents are planning to become US tax residents soon, consider consulting with an Enrolled Agent who specializes in international taxation. The timing of the sale relative to their residency status could have major tax implications, and it's worth getting professional advice upfront rather than trying to fix issues later.