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Foreign121 · Oct 2, 2009, 04:46 PM

Hi

We (my wife and I) came to the US in 2001 as students (F1 visa). We got our green cards in 2008 but we have filed our taxes as resident since 2006. We have an apartment in our home country, which was our primary resident, and we want to sell it and transfer the money to the US and use it as a down payment to buy a house here. The price of the house is less than $250K. Here are my questions:

1- Can we we use Section 121 and exclude the capital gain from our tax return?
2- Do we have to report it on our tax return if we can use Section 121?
3- The person who wants to buy our apartment is our relative and he will pay the money gradually. He will pay $150K this year and the rest in the next year when the title will be transferred to him. We want to transfer the first payment to our bank account in the US. How can we justify that the money is from the sale?

Any help in this regard would be highly appreciated.

IntlTax · Oct 2, 2009, 06:08 PM

You do not qualify for the section 121 exclusion because you have not lived in the house for 2 of the last 5 years. The sale must be reported on your U.S. tax return, likely as capital gain. You likely can defer some of the tax because the gain should qualify for installment sale treatment.

Foreign121 · Oct 2, 2009, 07:18 PM

Thanks IntlTax for your quick reply. I have heard that if you are nonresident alien, your primary residence is in your own country. Therefore, our primary residence had been in our country until 2008 when we got our Green Cards and this can be considered as living in that residence (although we were not physically there). For example please see the following link:

Tax Talk: U.S. tax on a foreign property sale

This guy says: "Their use as a U.S. nonresident would still count toward the two years. "

What do you think?

Thanks

IntlTax · Oct 2, 2009, 07:25 PM

The difference in your case is that you have not used the property in the last 5 years. If you had used the property in the last 5 years and you were a nonresident during that time, you would qualify. Residence status does not matter for purposes the section 121 exclusion. What matters is whether you lived in the property.

MukatA · Oct 3, 2009, 06:35 AM

Foreign121:
You must report the sale on schedule D (Form 1040). You do not qualify for $250,000 exclusion.
It is long term capital gain and the tax rate in the U.S. is maximum 15%. The gain may also be taxable in your country. So you will also file Form 1116 and claim foreign tax credit. So you will pay a very small per centage of tax in the U.S.

Now other requirements... you will also file Form FBAR if you keep money in foreign banks. You must also report any interest earned in
Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

AtlantaTaxExpert · Oct 5, 2009, 01:25 PM

I agree with BOTH IntlTax's and MukatA's posting.

Sorry, but the $250K just does NOT apply in your case.