By Daniel Baumgartner & Petra Peters
For most people, selling a house is a stressful situation. You have to make sure you have the right Realtor, get your house in proper shape, and navigate the changing housing market to make sure you get the best deal. But for people living abroad and selling their U.S. properties, there’s even more to consider. You’ll have unique tax consequences and opportunities, multiple options of what to do with the proceeds, and estate planning considerations.
To ensure you make the best decisions possible, we want to detail three tips you should keep in mind if you are living abroad trying to sell your real estate in the U.S.
1. Research Your Tax Liabilities and Opportunities
The first thing you need to understand are the tax ramifications that come with selling your home. While it shouldn’t necessarily change whether or not you want to sell, it will be essential to have clarity about what to expect before you start this process.
The first item we suggest reviewing is if you will qualify for the Main Home Exclusion. This is an IRS opportunity to exclude up to $250,000 of gain per person, or $500,000 for a couple, from your taxes. To qualify, you must have owned the property for at least two years out of the last five, and you must have used the house as your primary residence for at least two years of the last five.
There are also some exceptions to this rule if you were divorced during this period or a spouse passed away. And if your job required you to relocate, you may also be eligible for a partial exclusion. If you think you might qualify for some or all of this benefit, it’s worth looking into fully.
Another tax consideration is the Foreign Tax Credit. When you pay taxes abroad, and are subject to U.S. taxes on that same income, you might qualify for this credit, which will reduce your tax liability on a dollar-for-dollar basis. This helps you avoid double taxation on the same income you earn.
Unfortunately, proceeds from the sale of a house do not qualify for the Foreign Earned Income Exclusion, as the sale of a house is considered a capital gain and not a type of earned income.
2. Determine What to Do With the Proceeds
Once you have an idea of the tax ramifications as well as how much the house will sell for, then you can start to plan what to do with the proceeds. Will you be keeping the proceeds in accounts located in the U.S. or will you move them abroad? In our experience, making that decision is best suited in the context of your overall financial goals, which we set out at the beginning of our work with clients. If you aren’t sure of your financial goals, designate time to clarify what they are, or consider working with an investment advisor who can help.
Depending on the country where you’ll be keeping the assets, you can then figure out which type of account and which investment strategy is best for you.
3. Understand the Impact to Your Estate Plan
Before you sell, you should understand exactly how the house is structured in your estate plan. Is the house owned individually or jointly? Or is it in a trust? Just as importantly, do you want to keep the same structure with the proceeds as you did with the house?
Since every country has different estate planning laws, it’s vital to understand what your goals are with the money, and then find the best way to make that happen in accordance with your country’s laws. In more intricate matters like this, we highly recommend consulting with a qualified expert to make sure your wishes are met.
Get Help From an Expat Expert
If you’re looking to sell your house in the U.S. but want to make sure you take advantage of every opportunity while limiting mistakes, we’d love to see if we can help. To schedule a consultation, you can reach out to us directly at 212-355-1234 or email@example.com for the New York office (Petra) or 855-248-6630 or firstname.lastname@example.org for the New Jersey office (Daniel). You may also contact us here to schedule a meeting and we’ll get in touch with you soon!
Daniel Baumgartner is a founding partner of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Daniel has extensive experience in marketing, development of special U.S.-investment products, as well as customer acquisition and relationship management. His ultimate goal is to make a difference in his clients’ financial lives through honest investment advice. He strives to provide high-touch, personalized service and enjoys getting to know a client’s personality as it relates to their financial circumstances before crafting the right solutions. As money is a very personal subject, Daniel takes his responsibility as an advisor very seriously, forming long-term relationships with clients based on trust.
Daniel received his degree in finance and international business from New York University. Outside of the office, he is a hobby landscape, street photographer, and has a great interest in U.S. and European history (16th-19th centuries), believing it helps him answer the question “Why is something the way it is?”
Petra Peters is a founding partner and the Chief Executive Officer of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Petra has decades of experience in the banking industry, asset management, overseeing the administration of individual accounts, and designing and advising specialized funds tailored to the requirements of international private and institutional clients. With extensive knowledge of both Europe and the U.S., she’s able to provide advice and services beyond the typical investment advisor. Petra desires for her clients to live a financially care-free life so they can pursue their passions, and she values their trust and gratitude. Creating invaluable friendships formed over years of partnership, some clients even consider her part of their family.
Petra’s interests outside of work include classical music, history, travel, charities, motorcycling, and golf. She is also on the board of a German charity.