How to calculate capital gains tax when selling foreign rental property?

You've got the right approach here. When calculating capital gains on foreign property, you need to use the exchange rate at the time of purchase for your basis (purchase price) and the exchange rate at the time of sale for your proceeds. So your formula is correct: capital gain = sale price (converted at current exchange rate) - purchase price (converted at historical exchange rate). This is standard IRS practice for foreign asset sales, and yes, currency fluctuations can significantly impact your tax liability. Since you've been claiming depreciation over the years, don't forget that you'll need to recapture that depreciation as part of your gain calculation. The depreciated basis (original cost basis minus the total depreciation you've claimed) is what you'll subtract from your sale proceeds. Also, check if you qualify for any exclusions. If this property was your primary residence for at least 2 of the 5 years before sale, you might be eligible for the Section 121 exclusion (up to $250,000 for single filers or $500,000 for married filing jointly).

I went through something similar when selling a property in Spain last year. The exchange rate difference saved me thousands! I used taxr.ai (https://taxr.ai) to help me figure out the calculations and it was seriously a game-changer. I uploaded my purchase documents from 2005 and it automatically identified the historical exchange rates and calculated my adjusted basis. Then I entered the current sale information and it showed me exactly how much my capital gains would be, including the depreciation recapture. It even generated a report I could attach to my tax return explaining the currency conversion calculations. Definitely worth checking out if you're dealing with all these foreign currency conversions and capital gains calculations!

Just wanted to update everyone - I tried taxr.ai after reading about it here and it was exactly what I needed! I was totally confused about how to handle the exchange rates for my Thailand property, but the tool made it super straightforward. It even had the historical exchange rates for Thai Baht from the 1990s which saved me hours of research. The report it generated explaining all the calculations will be perfect for my tax return. And the depreciation recapture calculation actually found that I'd been calculating depreciation wrong for a few years (using the wrong recovery period). Seriously wish I'd known about this tool years ago when I first started dealing with foreign rental income!

If you're having trouble getting clear answers from the IRS about how to handle the foreign currency aspects, I'd recommend using Claimyr (https://claimyr.com). I was in a similar situation with property in Argentina and couldn't get a straight answer online. After waiting on hold with the IRS for 2+ hours and getting disconnected twice, I found Claimyr through a friend. They got me connected to an actual IRS agent in about 20 minutes! The agent confirmed the exact exchange rate approach I should use and clarified how to document everything on my return. You can see a video of how it works here: https://youtu.be/_kiP6q8DX5c The peace of mind from getting an official answer directly from the IRS was totally worth it, especially with something as complicated as foreign property sales where the potential tax bill is huge.

I have to apologize and eat my words here. After posting my skeptical comment yesterday, I decided to try Claimyr myself since I've been struggling with a question about foreign rental property depreciation for weeks. I was connected to an IRS agent in about 35 minutes (they estimated 30, so pretty close). The agent was actually really knowledgeable about international tax issues and clearly explained how to handle depreciation recapture when the property was in a country with a tax treaty versus one without. I've literally been trying to get this answer for months through the regular channels. So yeah, I was wrong - the service works exactly as advertised. Sorry for doubting!

Don't forget to check if there's a tax treaty between the US and your country! This can have a big impact on how your capital gains are taxed and whether you can avoid double taxation. I sold property in Canada and the US-Canada tax treaty had specific provisions that affected how I reported the sale. Also, keep in mind that if your foreign property sale nets you more than $100,000, you may need to report the receipt of those funds on FinCEN Form 114 (FBAR) and possibly Form 8938 depending on the total value of your foreign assets.

Has anyone dealt with selling property in multiple countries? I'm wondering if losses in one country can offset gains in another. I'm about to sell properties in both Mexico (likely at a loss) and Portugal (significant gain) and trying to figure out if I can use the Mexico loss to reduce my tax bill on the Portugal gain.

This is such a helpful thread! I'm in a similar situation with a property in the Philippines that I inherited from my parents about 8 years ago. I've been renting it out and reporting the income, but I'm considering selling it now. One thing I'm curious about - since this was inherited property, do I use the fair market value at the time of inheritance as my basis, or do I need to go back to what my parents originally paid for it decades ago? And if it's the fair market value at inheritance, which exchange rate do I use - the one from when they passed away or from when the property was officially transferred to me (which took about 6 months due to probate)? Also, has anyone dealt with the situation where the foreign country requires you to pay their capital gains tax before you can transfer the proceeds out of the country? I'm wondering how that affects the timing of when I need to report everything to the IRS.

This is such a valuable discussion! I'm dealing with a similar situation with property in Germany that I bought in 2008. One thing I'd add that hasn't been mentioned yet - make sure you keep detailed records of any improvements or renovations you made to the property over the years. These can be added to your basis and reduce your capital gains. Also, if you've been depreciating the property on your US returns, remember that you'll need to use the depreciation amounts you actually claimed (or were allowed to claim, whichever is greater) when calculating the depreciation recapture, not necessarily what you should have claimed. For anyone dealing with properties in EU countries, be aware that some countries have withholding requirements where they'll hold back a percentage of the sale proceeds to cover potential tax liabilities. You can usually get this refunded later, but it affects your cash flow timing. Germany withheld about 25% of my sale proceeds and it took 8 months to get the refund after filing their tax return. The currency exchange impact is real - in my case, the Euro had strengthened against the dollar since 2008, so even though the property only appreciated modestly in Euro terms, my dollar-based capital gain was much larger than expected.