Primary home abroad turned rental now sold

Forum|Forum|3 years ago
March 28, 2023
1 reply
0 views

Hi,

I had an property in Europe that I kept when moved to the US (California) because of work in March 2018. I started to rent it out in June 2018 when I figured I would stay for a bit and was planning to sell it but then Covid hit which made it difficult to setup. I kept renting it out, reported rental income and depreciation for it in the US. In August 2022 I finally managed to sell it (and payed taxes for the sale in EU)

Questions:

1. How do I report this in TT? Is it a normal property sale or is there a special section for foreign properties?

2. I know I don't qualify for the full 2 out of 5 year exclusion, but do I qualify for a partial? When I filled it in in TT it looks like I do but does the fact that I rented it out or have lived in the US for too long disqualify me?

3. I summarized the depreciation I've done during the years and added that back. Is that correct?

4. Where do I report foreign tax credits for the sale?

5. What date do I use for the currency conversion? Purchase date, sales date, or average? Or do I use the date for when the transaction was made?

6. Any other gotchas that I should be aware of?

Thanks in advance

DaveF1006

It is reported as a normal property sale except the depreciation schedule is different. normally on a domestic rental the property is depreciated over 27.5 years. since you rented your property in 2018, the depreciation is depreciated over 30 years instead of 27.5 years.

You qualify for a partial exclusion if:

You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.
You had no previous work location and you began a new job at least 50 miles from the home.
Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

Also if you captured the depreciation since you rented the house, that is correct. Make sure you use a 30-year depreciation schedule in recapturing your depreciation because this is the depreciation you will need to report as a recapture and not the actual depreciation you may have claimed using a different deprecation schedule.

All reporting is done with US dollars. So you may need to know what the USD equivalent for the currency amount on the purchase date and the sales date. It may fluctuate between the two dates so you may need to do your homework to find out what the USD equivalent value was on a certain date. You might wish to use an average but if considerable time elapsed between the purchase and sale date, an average may not be accurate.

Finally, here is where you will list the foreign taxes paid on the sale.

Open Turbo Tax
Go to federal>deductions and credits>estimate and other taxes paid
Foreign taxes >start
Start answering questions. Make sure you answer the question correctly about if this is the first year you are making the simplified election
Answer the questions in the next screens until you reach a screen that talks about income type. This will passive income.
Next screen is where you add the country your foreign income was earned in.
Next screen will ask you what your source income earned in that country. Here you will allocate income earned while you were in that country.
You will continue answering questions until you get to a screen that says foreign taxes paid to XXXX. Be sure not to list a date at the bottom beyond 12/31/2022 or you won't get the foreign tax credit and will show up as an error in your return

{Edited 03/28/23} (4:36 PM PST} @matun

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

matunAuthor

Thanks for you reply @DaveF1006 !

Ok, normal property sale, different depreciation schedule, thanks!

I have a google sheet for conversion rates so I can easily use the rate for the respective date, purchase, sale and so on.

I have some follow-up questions:

Do you mean that depreciation is different on foreign properties in general or did 2018 have anything to do with that?
What do you mean that no partial exclusion exists? From what I understand the partial exclusion is usable when you don't qualify for the 2 year rule. In my case work-move and partial would be from Aug 2017 (5 year look back) to Mar 2018 (ie. 9 months). That is not correct?

Thanks again

DaveF1006

Prior to 2018, the depreciation period for foreign properties was 40 years. This changed to 30 years in 2018.

I am sorry, you can claim a partial exclusion according to IRS publication 523. Look under the section Does Your Home Qualify for a Partial Exclusion of Gain? Because of your work related move, you should qualify for this exclusion. I apologize for my earlier advice. Here is the work related move requirement.

Work-Related Move

You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.
You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.
You had no previous work location and you began a new job at least 50 miles from the home.

Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

@matun

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"