# Owning/selling U.S. home, living abroad



## Markw511

My wife and I live in Bulgaria and we've been renting our home in the States. But we're told, for tax purposes, it makes sense to sell our former family home before too long. But what then? Buy a new property in the States? Invest the profit elsewhere? Looking for others who have traveled this road and any tax related info that would be helpful.


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## xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxZona some

Welcome.

You could rent out property in Bulgaria? It's not unheard of, it's a pretty popular holiday destination; particularly for the British and Germans these days, so it would make a profit of some sort. 

I don't know about the taxes, who warned you about these?


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## Mike El Porton Verde

*rule that affects rolling over your equity...*



Markw511 said:


> My wife and I live in Bulgaria and we've been renting our home in the States. But we're told, for tax purposes, it makes sense to sell our former family home before too long. But what then? Buy a new property in the States? Invest the profit elsewhere? Looking for others who have traveled this road and any tax related info that would be helpful.


I'm really vague on this at present, had to deal with this about seven years ago now. As I recall, if you have your property rented in the States for a certain period, then sell it, the property is considered a rental or income property, not your personal residence, so the rules are different if you then want to rollover your equity into a new property. Something like how many months was it rented in the last five years but don't hold me to it please 

Basically it is more complicated to do a rollover for an income property and simpler for a personal residence. Talk to your CPA/tax advisor/RE atty.


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## Markw511

Mike El Porton Verde said:


> I'm really vague on this at present, had to deal with this about seven years ago now. As I recall, if you have your property rented in the States for a certain period, then sell it, the property is considered a rental or income property, not your personal residence, so the rules are different if you then want to rollover your equity into a new property. Something like how many months was it rented in the last five years but don't hold me to it please
> 
> Basically it is more complicated to do a rollover for an income property and simpler for a personal residence. Talk to your CPA/tax advisor/RE atty.


Exactly what we had heard. We'll do a little more research on it. Tax law always changes so what we knew last year might be different this hear, I suppose.

Thanks for the input. Mostly, I think we'll probably sell and try to figure out what the tax ramifications will be. One thing is certain: our dollars go a long way in Bulgaria.


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## Markw511

Zona somewhere else said:


> Welcome.
> 
> You could rent out property in Bulgaria? It's not unheard of, it's a pretty popular holiday destination; particularly for the British and Germans these days, so it would make a profit of some sort.
> 
> I don't know about the taxes, who warned you about these?


Thanks, 'Zona,'

Our first order of business is to get rid of our U.S. property without getting killed in taxes. Then we'll start thinking about investing -- either in the States or abroad. I think it'll come down to tax liability and so we were looking for other ex-pats who had traveled this route before.

We will definitely scout out Bulgaria, but there are some real peculiarities in buying there -- including bringing shoeboxes full of leva to the builder or real estate agent. Scary stuff, but probably not that much scarier than entrusting our 401k to nameless faceless brokers.


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## Bevdeforges

Tax-wise, once you've rented out your home, it becomes "income property" and subject to different rules on sale than for a personal residence. The kicker is that you have to figure in depreciation, which lowers the basis (i.e. the "purchase price") used to calculate any gain on the sale. So, you have a larger gain to pay taxes on.

Reinvesting in another rental property is one way to defer taxes, but it leaves you with all the usual problems of long-distance property management. If you reinvest in the US, you avoid all the reporting issues that folks have been moaning about with FBAR and FATCA. You can reinvest where you are (either Bulgaria or Europe in general) but make sure you understand what you'll have to report. A simple savings or mutual fund type investment is probably the simplest (at least in terms of reporting obligations for US tax purposes).

If you like, I can move this discussion over to the expat tax section - it could be interesting and useful to others thinking about establishing residence overseas.
Cheers,
Bev


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## Markw511

Bevdeforges said:


> Tax-wise, once you've rented out your home, it becomes "income property" and subject to different rules on sale than for a personal residence. The kicker is that you have to figure in depreciation, which lowers the basis (i.e. the "purchase price") used to calculate any gain on the sale. So, you have a larger gain to pay taxes on.
> 
> Reinvesting in another rental property is one way to defer taxes, but it leaves you with all the usual problems of long-distance property management. If you reinvest in the US, you avoid all the reporting issues that folks have been moaning about with FBAR and FATCA. You can reinvest where you are (either Bulgaria or Europe in general) but make sure you understand what you'll have to report. A simple savings or mutual fund type investment is probably the simplest (at least in terms of reporting obligations for US tax purposes).
> 
> If you like, I can move this discussion over to the expat tax section - it could be interesting and useful to others thinking about establishing residence overseas.
> Cheers,
> Bev


Bev,
Thanks! Yes, please feel free to move this discussion over to the tax forum. Still trying to figure out the terrain here.


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## Mike El Porton Verde

*likewise here in Nicaragua...*



Markw511 said:


> Exactly what we had heard. We'll do a little more research on it. Tax law always changes so what we knew last year might be different this hear, I suppose.
> 
> Thanks for the input. Mostly, I think we'll probably sell and try to figure out what the tax ramifications will be. One thing is certain: our dollars go a long way in Bulgaria.


we live very well here in a beautiful location for much less than one would pay in the States.


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## JasonWatson

Bevdeforges said:


> Tax-wise, once you've rented out your home, it becomes "income property" and subject to different rules on sale than for a personal residence. The kicker is that you have to figure in depreciation, which lowers the basis (i.e. the "purchase price") used to calculate any gain on the sale. So, you have a larger gain to pay taxes on.
> 
> Reinvesting in another rental property is one way to defer taxes, but it leaves you with all the usual problems of long-distance property management. If you reinvest in the US, you avoid all the reporting issues that folks have been moaning about with FBAR and FATCA. You can reinvest where you are (either Bulgaria or Europe in general) but make sure you understand what you'll have to report. A simple savings or mutual fund type investment is probably the simplest (at least in terms of reporting obligations for US tax purposes).
> 
> If you like, I can move this discussion over to the expat tax section - it could be interesting and useful to others thinking about establishing residence overseas.
> Cheers,
> Bev


Not the whole story. If you live in your property for 2 out of 5 years (24 months, not necessarily consecutive) you are eligible for the $250,000 or $500,000 exclusion on the capital gain.

There is not a poison pill associated with converting a house to a rental, but over time the exclusion disappears.

Also, recapture of depreciation is done at ordinary income levels not capital gains.

Lastly, if you can show that the increase in value is due to land value increases, you can mitigate the depreciation issue.

Get some professional tax advice. Some of the advice in this thread is not complete.

Thanks,

Jason


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## Bevdeforges

Jason raises a very valid point that I would like to clarify.

Any and all tax "advice" here in the forum is, by definition, only a recommendation. We can guide you to where to look for more information or how individuals here have handled a similar situation in the past (and whether or not they've "gotten away with it" :juggle. 

Ultimately (and particularly regarding US taxation) you are responsible for whatever you decide to do - even if you engage paid tax advisers. The best we can do here is to guide you to the proper publications or give you a few "tax terms" to help you in your own research. 
Cheers,
Bev


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## JasonWatson

Thanks Bev!

To further your point, the tax terms that are pertinent in this thread are-

Publication 523 regarding capital gain exclusion

Publication 544 regarding section 1250 gain

I would steer clear of any "gotten away with it" advice. Thankfully, this stuff is fairly straightforward and offers reasonable interpretation of the grey areas.

Thanks,

Jason


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## Markw511

Thanks for the thoughtful advice, Jason and Bev.


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## USBankerINchina

I've been living abroad for 3 years and renting out my property in the US for 2 years. During these two years, the house was cash flow negative meaning the rent I collected did not fully cover mortgage interest, insurance, property taxes, etc. In those years, I accrued "passive losses" on investment property, a hefty chunk. Those losses did not reduce my taxable income because I was already above the alternative minimum tax threshold (AMT). This year, I will actually make an income on this property thanks to rising rents and lower mortgage rates. This years income will not be taxed but rather deducted from passive losses. In the event that I sell the property, any taxes on resulting gains will first be deducted from this loss pool, if any is still left over at the time of sale. So for me, as long as I don't have to pay a lot of taxes on the income and the property is cash flow positive, I have no reason to sell. Hope this helps.


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