# Capital gain tax issues



## roopsingh60 (Aug 12, 2012)

Hi,
I am Australian citizen, moved to US in 2006 and got green card in 2007, since then I am living in CA, I have a house in Australia that I like to sell, I just found out if I sell my house in Australia i have to pay capital gain tax on the gain in US. I am wondering what legal steps i can take to reduce the CGT, if anyone been through the same situation or Knows some really good CPA expert in this area. Your help will be much appreciated.

Thanks 
Roop


----------



## JasonWatson (Aug 2, 2012)

Hi Roop! There is a housing exclusion up to $250,000 for single filers and $500,000 for those filing married joint. However, you must have lived in the home for 24 months out of the past 60 months.

I presume that is not the case for you, correct (in reading your post)?

Capital gains can be reduced by offsetting costs of acquisition (purchase price and costs), costs of improvements (new deck, windows, etc.) and the cost of sale (commissions, etc.).

Taxes paid to Australia can also be deducted or credited (depending on your situation) on your US tax return.

I hope this helps!

Jason


----------



## Bevdeforges (Nov 16, 2007)

You can also increase your basis by a certain amount of "fix-up" costs in preparation for the sale. Take a look at Pub. 523 from the IRS website: Publication 523 (2011), Selling Your Home though it isn't entirely applicable to your situation because you probably won't be able to claim it as your primary residence in 2 of the last 5 years.

If you've been renting it out during the time you've been away, there may be further complications in figuring the tax due on the sale. But any income taxes due to Australia on the sale of the property can probably be deducted as tax credits.

If your employer was assisting you with your taxes during all or part of your stay here prior to getting your green card, you may want to ask HR what company they use for their expat tax assistance. 
Cheers,
Bev


----------



## JasonWatson (Aug 2, 2012)

Bevdeforges said:


> You can also increase your basis by a certain amount of "fix-up" costs in preparation for the sale.
> Cheers,
> Bev


This is what I said, but I'll say it a different way using Bev's term. Your basis (which is your cost in US tax terms) is adjusted upward by-

the initial purchase price
costs associated with the purchase
any improvements (not repairs)
costs associated with the sale

Here is the IRS link for determining your basis- Publication 523 (2011), Selling Your Home. This is the direct link for the section in the publication dealing with basis.

The difference between this adjusted basis and your selling price is your gain.

Thanks,

Jason


----------



## roopsingh60 (Aug 12, 2012)

Thanks all for information, I have another question if I move back in my house in Australia for 2 yrs, can I claim 500K exemption? , I am thinking to go back for 2 yrs work there and then come back.? any suggestions ?

thanks


----------



## JasonWatson (Aug 2, 2012)

Yes. Here is the IRS link for that part too-

Publication 523 (2011), Selling Your Home

And remember, it just has to be your main home. You can still have a second home or vacation home. If you have multiple homes, you might have to demonstrate that this sale was the sale of your main home.

Thanks,

Jason


----------



## Bevdeforges (Nov 16, 2007)

roopsingh60 said:


> Thanks all for information, I have another question if I move back in my house in Australia for 2 yrs, can I claim 500K exemption? , I am thinking to go back for 2 yrs work there and then come back.? any suggestions ?
> 
> thanks


Just be careful about your green card status. Leaving the US for more than 1 year without giving appropriate notice can result in a very complicated situation. The IRS seems to use different criteria for deciding when you are or aren't "resident" in the US than does the State Department. 

If you just head out for two years without filing the appropriate paperwork, you may find that your green card is no longer valid on re-entry to the US - but the IRS still considers you liable for "resident" tax status.
Cheers,
Bev


----------



## robnw (Jul 18, 2012)

If your idea is to reduce CGT, don't forget that you may now have only a part-exemption to Australian CGT on eventual sale, depending upon the elections your made in your Aus tax return. 
Capital gains tax (CGT) and going overseas
and that will change the numbers for deciding whether to go back to Australia temporarily.

The US-Aus treaty as far as I can tell deals only with Income Tax which is a shame because you'd normally expect the Treaty to say that only Aus can charge CGT on a local house, subject to a savings clause (which is sometimes switched 'off' for certain taxes) - and that would mean you would not have to stay for two years. This needs more research by you or your adviser (means I don't know the answer at the moment :} ).


----------



## JasonWatson (Aug 2, 2012)

Bevdeforges said:


> Just be careful about your green card status. Leaving the US for more than 1 year without giving appropriate notice can result in a very complicated situation. The IRS seems to use different criteria for deciding when you are or aren't "resident" in the US than does the State Department.
> 
> If you just head out for two years without filing the appropriate paperwork, you may find that your green card is no longer valid on re-entry to the US - but the IRS still considers you liable for "resident" tax status.
> Cheers,
> Bev


This is good advice. Defining a main home however might be different than maintaining reisdency for green card status. I believe you would slicing things pretty thin trying to do both.

Thanks,

Jason


----------

