# Selling a Primary US Residence before Expatriating - Do I get GC Taxed if I sell the year I exit



## J Docherty (Sep 7, 2021)

Hello all,

I just heard about the possibility of having to pay a GC Tax on a primary residence if you sell it the same year you expatriate? Even if it's under the $250K-500K Gain exemption. I also read that if you sell the year prior to moving you are okay.

I'm a Long term GC holder and my wife is a US Citizen.

Any help is greatly appreciated.
Thanks


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## JustLurking (Mar 25, 2015)

You have two US tax traps to consider here.

The first is the US's Soviet-style expatriation tax, which triggers when you ditch the green card. For that to apply, you have to own assets above $2mm worldwide or have an average US annual tax liability of around $170k or so. (Or, not be US tax-compliant.) Its 'deemed' realisation of unrealised capital gains can be nasty but has a reasonable exemption; its 'as-if-withdrawn' tax on your entire retirement savings has zero exemption and is uniquely malicious. If this tax would apply to you, then there are some creative ways to use gifting to work around it, at least up to the $11mm or so level at which US estate tax kicks in.

The second is FIRPTA. This taxes the capital gains on sales of US real estate by nonresident aliens at ordinary US _income tax_ rates, no exemptions or deductions. Once you ditch the green card, you will be a nonresident alien by definition, so that argues for selling the house at least before ditching the green card.

Other than these, I'm not aware of other traps; certainly nothing that dictates selling up to a year before leaving the US. As a rule, you can usually file your final US tax return as a 'split year' one, meaning that stuff that happens before you ditch the green card won't fall under nonresident alien rules. Because you are married to a US citizen, that would mean you'd both have to file that year MFS, which might I suppose have some tax ramifications, but to know what these might be would require a complete picture of your family finances. That leaves state tax issues; nothing from me on those.

What did you read, and where did you read it?


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## J Docherty (Sep 7, 2021)

Thanks for the info... I heard it on this video - see link below. (At the 26:53 second mark)






It took me by surprise.


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## Moulard (Feb 3, 2017)

As hinted at by JL, you can take advantage of the differences between immigration law and tax law here.

Remember that you remain a US Person for tax purposes until you 

return your green card to a US consulate or embassy overseas with an explanatory letter 
submit I-407, 
claim certain treaty.
This is the case even if you could not reenter the US on the green-card.

You can use this to your advantage, for example, by failing to do any of the above until such time as it suits your circumstances and you have implemented whatever plan (including selling the house).

Indeed, unless you ever need to return to the US (which given a US Citizen spouse may occur at some point or other) the only time you would be "forced" to submit an I-407 is to return to the US (at the border on a ESTA) or at a consulate when applying for a non-immigrant visa.


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## JustLurking (Mar 25, 2015)

Hmm. The video seems to be assuming that the folks being described will be covered expats. From IRS pub 523:


> Your home sale isn’t eligible for the exclusion if ANY of the following are true.
> 
> You acquired the property through a like-kind exchange (1031 exchange), during the past 5 years. See Pub. 544, Sales and Other Dispositions of Assets.
> You are subject to expatriate tax. For more information about expatriate tax, see chapter 4 of Pub. 519, U.S. Tax Guide for Aliens.


As a departing long-term permanent resident but _not_ a covered expatriate -- that is, you have assets below $2mm, etc (and that's you, right?) -- are you "subject to expatriate tax", or not?

It's not abundantly clear, at least not to me, but the surface reading seems to be that someone who is not a "covered expat" is not "subject to expatriate tax".

Of course, US tax law is appallingly complex, unfathomably murky, and broadly unworthy of a civilised society. No part of it more so than the Reichsfluchtsteuer expatriation tax. So be sure to double- and triple-check everything you get from random folk on the internet. Including me.


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## Moulard (Feb 3, 2017)

JustLurking said:


> It's not abundantly clear, at least not to me, but the surface reading seems to be that someone who is not a "covered expat" is not "subject to expatriate tax".


Your surface reading is correct.

The exit tax only applies if you are a covered expatriate.

You are a covered expatriate if any of the following are true

Your average net income tax liability (ie you had to actually PAY) exceeds the threshold (currently $171,000)
Net worth over $2 million
fail to certify that you are up to date with US federal tax obligations
you expatriate to avoid US tax (I don't know anyone who would be stupid enough to say it or put it in writing even if it was true)
Before performing any expatriating act one should arrange ones affairs accordingly.


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## J Docherty (Sep 7, 2021)

Thanks for the updates - appreciate the dialogue.

I think I will certainly be under the $2m assets/net worth mark. Thankfully for this purpose.

The Point around "Certifying the previous 5 years worth of tax obligations" - I'm guessing this means we filed and paid the IRS on time and in full? Or, do I need some special audit done on my filings/returns? Have them "certified" so to speak by a professional.


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## Moulard (Feb 3, 2017)

No, you certify it when you sign that last tax return to which form 8854 is attached.


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## J Docherty (Sep 7, 2021)

Thank you Moulard. : ). One less form/stress to get after.


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