[auskiwi]

I understand there is no capital gains tax due on the recent sale of our home in Titirangi as long as we stay in NZ. However, when we return to the U.S permanently (next month) does anyone know what our tax liability n the U.S will be on the capital gain we made here in NZ? Thank you!

Amy.

[Oregonkiwi]

hi Amy
I don't know if you've already found this:

http://www.irs.gov/newsroom/article/0,,id=170634,00.html
Property outside U.S. –– U.S. citizens who sell property located outside the United States must also report gains from these sales, unless the property is exempt by U.S. law. Reporting is required whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer.

Avril

[constablechuck]

Uncle Sam has his hand in your pocket no matter where you go, it almost feels like the U.S. government owns it's citizens :(

[Super_BQ]

The IRS's approach in world wide income tax is due to decades of evasion. In the past there were many that evaded taxes by moving their money next door to the Cayman Island, Bahamas, Turks, etc. - I don't think that's possible anymore without lifting an eye brow.

In the area of estate planning, one could structure their assets in a way to avoid paying death tax. Declare non-residency, move overseas, die and the beneficiaries in the US would claim the benefit. Since the US has death tax, they want to make sure such tactics don't slip away - which is the reason for reporting it.

Then there's the other aspect of patriotism. If you enjoy being an American citizen, then you best also contribute like the rest of everyone else. You can't build a "country where dreams are made" if everyone didn't pay their fair share? When I took some tax courses at uni in Canada, our tax prof described part of the reason for Canada's high taxation is due to the inefficiency of the current tax system (I'm sure the same would apply for NZ). His meaning was simply, not enough people were paying their fare share (because of too many loop holes in the tax act, etc.) as accountants and lawyers continued to find ways to tax exempt their clients. So culture has a big influence in the country's tax take.

The only way out of not filing an IRS return is to renounce your US citizenship. Which would mean you have no future plans of contributing to the country, nor plans of returning back as a resident. If you don't want the US gov't on your back every year, then this is the best solution.

But then think about this, in the past the US gov't has been very proactive in saving American citizens who are stuck in some foreign country. Instances such as kidnappings, civil wars, mother nature disasters, etc. I myself do not know of any other developed country that could be more willing to save their own citizens in trouble overseas - perhaps it's due to the huge military prescence the US has worldwide. When you renounce your citizenship, you are also saying good bye for their help.

[jess]

hi Amy
I don't know if you've already found this:

http://www.irs.gov/newsroom/article/0,,id=170634,00.html
Property outside U.S. –– U.S. citizens who sell property located outside the United States must also report gains from these sales, unless the property is exempt by U.S. law. Reporting is required whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer.

AvrilSo it's the same as if you were in the US. If you have lived in the house for 2 years before selling, I believe you still get to exempt up to 500K in capital gains on a joint return, just as you would be able to do in the states...

Home –– If you sell your residence, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). To exclude the gain, you must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale.

Also -- several years ago we resold a house in under two years but ended up being exempt from paying capital gains because we had to sell due to the death of my mother, which was an extenuating circumstance allowed by the IRS. I can't remember where in the tax code this info was, but if you're selling in under 2 years, you should research to find out if anything in your situation (if you were moving back to the US due to an illness in the family or a job transfer) might exempt you from capital gains.

[barryp]

Yup, pretty much the same situation as with a home in the USA. The main complication you'll face is calculating the basis and adjustments to basis, which must be done in US dollars. You should get clarification as to the appropriate rates to use for that. Intuitively, they would be the bank rates on the days of sales activity - NOT when or what you paid to convert your money from US$. But I don't know the facts.

If you fail to meet the two-year rule, you can claim the exclusion anyway; it will be reduced based on how long you met the other two tests (ownership and use). So if you meet those tests for 12 months, your allowable gain exclusion is $125k single $250k joint. Etc.

Uncle Sam has his hand in your pocket no matter where you go, it almost feels like the U.S. government owns it's citizens :(

There may be some truth to that, but in this case, the IRS is letting couples walk away with up to half a million dollars free of tax every two years, with no limit on how many times the deduction can be claimed. Seems pretty generous to me... even overly generous.

Once again, Super_BQ answers a simple question with raving and drooling of dubious value and zero direct applicability to the question. Thanks so much. :mad:

[jess]

If you fail to meet the two-year rule, you can claim the exclusion anyway; it will be reduced based on how long you met the other two tests (ownership and use). So if you meet those tests for 12 months, your allowable gain exclusion is $125k single $250k joint. Etc. I'm not sure about this, but would be glad to be wrong... do you have a reference for it? I ask because H&R Block had told us you can only get a reduced exclusion like you are talking about if you meet the requirements of an illness in the family, job change, or other allowable circumstance as listed on page 14 of Publication 523 - Selling Your Home (http://www.irs.gov/pub/irs-pdf/p523.pdf), and the Reduced Exclusion worksheet there seems to confirm that.

[barryp]

The criteria for 'unforeseen circumstances' are extremely lenient, per the supporting docs on the IRS website. Moving from one country to another almost suffices by itself; moving to another country to take a job does suffice. No demonstration of hardship is required, ex: "The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home" from Pub 523. People who migrate to another country, buy a house, then change their minds and move back within 2 years qualify under that proviso alone, assuming they meet both ownership and use tests.

I did forget one other relevant point: your home state in the USA may have tax laws that differ from those of the IRS.

[jess]

"The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home" from Pub 523. People who migrate to another country, buy a house, then change their minds and move back within 2 years qualify under that proviso alone, assuming they meet both ownership and use tests. I see. Thanks very much for clarifying! :)