Selling Property Overseas? U.S. Tax Rules Explained

Many Americans own a home or land in another country. Some bought it years ago. Some inherited it. Some received it as a gift from family abroad.

Sooner or later it is sold, and a simple question arises: what do I tell the IRS? The answer depends on where the property is, how you came to own it, what the local country charged, and how the money came home.

Who this applies to

• U.S. citizens and green-card holders, including dual citizens, selling property abroad
• People who inherited or were given a home or land in another country
• Anyone who opened an overseas bank account to receive the proceeds

The United States taxes citizens and residents on worldwide income [1].

The IRS taxes the sale, wherever the property is located

A house in Tuscany, a condo in Punta Cana, or a cottage in Ontario: to the IRS it makes no difference.

“If you are a U.S. citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U.S. law.”

IRS Publication 544 [1]

What is taxed is the profit, not the price: the sale price minus your “basis,” which is roughly what the property cost you plus permanent improvements, less selling costs [1].

Owned more than a year, the profit is a long-term capital gain. For 2026 the rate is 15 percent for most sellers and 20 percent once taxable income passes $545,500 for a single filer or $613,700 for a couple [2]. A separate 3.8 percent tax on investment income applies above $200,000 of income for singles and $250,000 for couples [3].

No one withholds this tax at a foreign closing. An estimated payment in the quarter of the sale avoids a penalty [4].

Your starting point depends on how you got the property

Three families can sell identical villas for the same price and owe very different tax bills. The difference is basis.

How you acquired it	Your basis	What you will need
You bought it	What you paid, plus improvements that last more than a year, such as a new roof or kitchen.	Old receipts, often in a foreign language and currency, that must be found and converted.
You inherited it	Generally the fair market value on the date of death, not what the owner paid decades ago.	Proof of that value, such as an appraisal or the value declared in the foreign estate.
You received it as a gift	Usually the giver’s own basis carries over, so the giver’s purchase records matter.	The giver’s records. A large gift from a foreign relative may also have required its own U.S. information form.

Sources: [5], [6]

If the home was your main residence for two of the last five years, up to $250,000 of profit ($500,000 for a couple) can be excluded, whatever country it is in [7].

Everything must be translated into dollars

You bought and sold in euros, pesos, or pounds. The IRS measures your profit in dollars, using the exchange rate on the day you bought and the rate on the day you sold [8].

Currency swings become part of your gain or loss. A property that barely rose in local value can show a sizable U.S. gain if the dollar weakened in between.

A foreign mortgage paid off at closing is its own transaction; its currency gain or loss is figured separately from the house [9].

Does the foreign tax you paid reduce your U.S. tax?

Sometimes, and only partly. A credit for foreign income tax paid on the same profit is claimed on Form 1116 [10], within limits.

Where a credit can help	Where it cannot
The country has a U.S. tax treaty, such as Italy, France, Spain, Portugal, the United Kingdom, Germany, Greece, Canada, Mexico, Israel, Jamaica or Barbados [11].	The country charged no tax. Italy, for example, generally exempts individuals who sell after five years, so there is nothing to credit [19].
The country actually taxed your gain.	Against the 3.8 percent investment income tax. Treasury regulations bar it, and in August 2026 the Federal Circuit held that treaties do not change the result [13], [14].
The tax is an income tax, or a flat tax paid in place of one [12].	Against New York State tax, which gives no credit for foreign taxes [15].

Sources: [10]–[15], [19]

Countries without a U.S. treaty, such as the Dominican Republic, the Bahamas, Costa Rica, Panama and Brazil, still allow the credit, but no treaty resolves conflicts over which country taxes what [11].

The bank account you opened for the closing

Many foreign closings require a local bank account. Once the proceeds arrive there, U.S. reports are triggered, even if the money is wired home the next day.

Three reports, one account

Report	When it is required	How and where it is filed
FBAR	Your foreign accounts together exceeded $10,000 at any time in the year.	FinCEN Form 114, filed online with the Treasury, not with your tax return, by April 15 (automatically extended to October 15) [16].
Form 8938	Foreign financial assets exceed $50,000 at year-end or $75,000 at any time ($100,000 and $150,000 for couples).	Filed with your Form 1040. The property is not reported; the account holding the proceeds is [17].
Schedule B	You had a foreign account at any time in the year.	Answer “Yes” to the foreign-account question on Part III and name the country [18].

Funds held for you by a foreign notary or lawyer may also need to be reported [16]. Missing these forms carries penalties separate from any tax owed [17].

What to gather before you sell

• Purchase deed, price and date, or the death or gift documents
• Receipts for improvements, commissions, notary and legal fees
• Exchange rates on the purchase and closing dates
• Foreign tax assessments, or proof that no local tax applied
• Highest-balance statements for any foreign account
• Mortgage payoff figures in the foreign currency

This article is for informational purposes only and does not constitute legal or tax advice. Reading it does not create an attorney-client relationship with Dilendorf Law Firm. Attorney Advertising. Prior results do not guarantee a similar outcome.