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As a Saudi with US citizenship, will I owe US capital gains tax on the sale of my Saudi home?

In Saudi Arabia, there is no capital gains tax on property sales. However, US citizens must report any gains to the IRS and may owe US capital gains tax.

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What are the key points to consider?

  • Principal Residence vs. Rental Property:
    • Principal Residence: If you’ve lived in your home for at least two of the last five years, you may exclude up to $250,000 (single) or $500,000 (married) of capital gains.
    • Rental Property: No exclusion applies. Calculate net gain or loss considering the property’s cost basis, sale proceeds, and improvements. Depreciation recapture may also apply.

How do home improvements affect taxes?

Improvements, like adding a swimming pool, can increase your cost basis and reduce taxable gains. Keep accurate records of all expenses.

What if I sell my rental property?

For rentals, consider the original purchase cost, sale proceeds, and depreciation. The IRS requires depreciation recapture, taxing previously claimed deductions upon sale.

Should I consult a tax professional before selling?

Yes, consulting a tax professional is advisable. They can help with tax calculations, as well as inform you of potential impacts and optimal timing for the sale.

How do I report rental income from foreign properties?

Report rental income on Schedule E of your tax return. Use Form 8858 for foreign rental properties, self-employment income, and ownership in foreign companies to detail your foreign investments accurately.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.


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