A green card holder selling foreign property owes U.S. tax on the gain, because lawful permanent residents are taxed on worldwide income the same way U.S. citizens are. It doesn’t matter that the house sits in another country, that the buyer paid in local currency, or that the foreign government also taxed the sale. The IRS still wants its cut, and it wants the numbers in dollars. What follows walks through the gain calculation, the reporting forms, the credit that prevents double taxation, and the foreign account disclosures that trip people up more than the tax itself.
Calculating the Gain
Start with the standard formula: amount realized minus adjusted basis equals gain.
Amount realized is the gross sales price minus selling expenses (agent commissions, transfer taxes, legal fees). Adjusted basis is your original purchase price plus the cost of capital improvements over the years — a new roof, an addition, a major renovation. Routine repairs don’t count. If the property was ever rented and you claimed depreciation, that reduces basis too.
Holding period sets the rate. More than one year gets long-term capital gains treatment at 0%, 15%, or 20% depending on taxable income.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, the 20% bracket starts at $545,500 of taxable income for single filers and $613,700 for joint filers. One year or less means short-term, taxed at ordinary rates.
The sale gets reported on Form 8949, which flows into Schedule D on your Form 1040.2Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Every figure must be in U.S. dollars.
The Principal Residence Exclusion Applies to Foreign Homes
If the foreign property was your main home, Section 121 lets you exclude up to $250,000 of gain (single) or $500,000 (married filing jointly), as long as you owned and lived in it for at least two of the five years before the sale.3Office of the Law Revision Counsel. 26 U.S. Code 121 – Exclusion of Gain From Sale of Principal Residence The statute doesn’t restrict this to U.S. property.
The two years of use must fall within the five years ending on the sale date.4Internal Revenue Service. Topic No. 701, Sale of Your Home So a green card holder who moved to the U.S. several years ago and kept the old home as a rental or vacation place has likely aged out of the exclusion. The 24 months don’t need to be consecutive, but they have to fit inside the five-year window.
Currency Conversion and Hidden Currency Gains
Every number on the return is in dollars, and the conversion date matters. Convert the original purchase price at the exchange rate on the day you bought. Convert each capital improvement at the rate on the day you paid for it. Convert sale proceeds at the rate on the sale date. The IRS accepts rates from banks, the Treasury, the Federal Reserve, and services like Oanda and xe.com; be consistent with whichever source you pick.5Internal Revenue Service. Foreign Currency and Currency Exchange Rates
Because rates move, the dollar-denominated gain often looks different from what you’d compute in the local currency. That’s normal. What surprises people is the second layer of tax under Section 988, which governs foreign currency transactions.6Office of the Law Revision Counsel. 26 U.S. Code 988 – Treatment of Certain Foreign Currency Transactions If you park the sale proceeds in a foreign bank account and the local currency strengthens against the dollar before you convert, that currency appreciation is a separate ordinary-income gain. If it weakens, you have an ordinary loss.
Foreign-denominated mortgages create a related trap. If you borrowed in local currency and repaid the loan at closing, an exchange rate shift between the borrowing date and the payoff date generates a currency gain or loss on the debt. When the local currency has weakened over the life of the loan, you effectively repaid less in dollar terms than you borrowed. That’s a “phantom” currency gain — no cash in hand, but ordinary income on the return. People who assume the mortgage payoff is a wash miss this every year.
Depreciation Recapture If the Property Was Rented
Any depreciation you claimed on prior U.S. returns comes back as “unrecaptured Section 1250 gain,” taxed at a maximum rate of 25%.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses That rate is higher than the standard long-term capital gains rates.
The hard part: even if you never claimed depreciation on a rented foreign property, the IRS reduces your basis by the depreciation “allowed or allowable.” Skipping the deduction each year does not save you at sale. You give up the annual tax benefit and still owe recapture on the way out. This is one of the more expensive mistakes green card holders make with foreign rentals.
The 3.8% Net Investment Income Tax
Higher earners face an additional 3.8% Net Investment Income Tax on top of capital gains tax. The NIIT hits the lesser of net investment income or the amount by which modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).7Internal Revenue Service. Topic No. 559, Net Investment Income Tax These thresholds aren’t indexed for inflation.
Gain from selling property that isn’t used in an active trade or business counts as net investment income.8Internal Revenue Service. Instructions for Form 8960 For most foreign home or rental sales, expect the NIIT to apply once income clears the threshold. Combined with the 20% long-term rate, the effective federal rate can reach 23.8%, before recapture or state tax.
The Foreign Tax Credit Prevents Double Taxation
Most countries tax gains on real estate located within their borders. Without relief, you’d pay the foreign country and the United States on the same gain. The foreign tax credit fixes that.
Claim it on Form 1116, filed with your return.9Internal Revenue Service. Foreign Tax Credit The credit offsets U.S. tax dollar-for-dollar by the qualifying foreign income tax paid. There’s a simplified election that skips Form 1116, but it caps at $300 of foreign tax ($600 joint) and applies only to passive income reported on qualifying statements.10Internal Revenue Service. Instructions for Form 1116 A real estate sale will almost always blow past that cap, so plan on the full form.
The credit is capped. It cannot exceed the U.S. tax owed on the foreign income. The IRS computes a ratio of foreign source taxable income to total worldwide taxable income and applies it to your U.S. tax to set the ceiling. When the foreign tax rate is lower than your effective U.S. rate, the credit covers the foreign tax and you pay the U.S. the difference. When the foreign rate is higher, the excess doesn’t help you this year.
Unused credits carry back one year and forward up to ten.11eCFR. 26 CFR 1.904-2 – Carryback and Carryover of Unused Foreign Tax Absorbing them requires future foreign source income in the same category, which many sellers don’t have after a one-time property sale, so excess credits often expire.
Foreign Account Reporting: FBAR and Form 8938
Sale proceeds usually land in a foreign bank account, at least briefly. That triggers two separate disclosure regimes. The penalties for missing these filings dwarf the effort of filing them.
FBAR (FinCEN Form 114)
If your foreign financial accounts collectively exceed $10,000 at any point during the year, you file the Report of Foreign Bank and Financial Accounts electronically through FinCEN’s BSA E-Filing System — not with your tax return.12Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)13Financial Crimes Enforcement Network. How Do I File the FBAR Due date is April 15, with an automatic extension to October 15 that requires no request.
The threshold looks at the highest balance at any moment during the year, not year-end. Sell a property for $300,000, hold the proceeds in a foreign account for a single day, and you have an FBAR obligation for that year.
Penalties are steep and inflation-adjusted. Non-willful violations can reach roughly $16,500. Willful violations can hit approximately $165,000 or 50% of the account balance, whichever is greater.14eCFR. 31 CFR 1010.821 – Penalty Adjustment and Table
Form 8938 (FATCA)
Form 8938 is filed with your tax return. For U.S. residents, single filers must file when specified foreign financial assets exceed $50,000 at year-end or $75,000 at any point during the year; joint filers, $100,000 and $150,000 respectively.15Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
The foreign real estate itself is not a specified foreign financial asset. Sale proceeds sitting in a foreign bank or investment account are. Failure to file starts at a $10,000 penalty and can climb to $50,000, with a 40% accuracy-related penalty on any tax underpayment tied to undisclosed foreign assets.16Office of the Law Revision Counsel. 26 U.S. Code 6038D – Information With Respect to Foreign Financial Assets17Internal Revenue Service. FATCA Information for Individuals
FBAR and Form 8938 are independent. Different thresholds, different filing destinations, different penalties. Most sellers of foreign property end up filing both.
Inherited Foreign Property
If you inherited the property rather than bought it, Section 1014 generally gives inherited assets a stepped-up basis equal to fair market value on the date of death. That can shrink the taxable gain dramatically.
There’s a real gray area when the property was inherited from someone who was neither a U.S. citizen nor a U.S. resident. Foreign real estate owned by a nonresident non-citizen isn’t in their U.S. gross estate, and some step-up provisions tied to estate inclusion may not apply. The basic bequest-and-inheritance step-up should still work regardless of the decedent’s citizenship, but professional guidance conflicts here. Given that the difference between a stepped-up basis and the decedent’s original cost basis can be six figures of tax, this is a call to make with an advisor before you file.
Timing Matters If You’re Thinking of Giving Up the Green Card
A lawful permanent resident for at least 8 of the last 15 tax years is a “long-term resident” for federal tax purposes. Surrendering the green card after crossing that line triggers the expatriation rules, which can impose a mark-to-market exit tax on worldwide assets.18Internal Revenue Service. Expatriation Tax
The exit tax applies to “covered expatriates” — long-term residents who meet any one of three tests: net worth of $2 million or more the day before expatriation, average annual net income tax liability exceeding approximately $211,000 for the prior five years (2026 figure), or failure to certify five years of tax compliance. Covered expatriates are treated as having sold all assets at fair market value the day before expatriation, with an inflation-adjusted exclusion of about $910,000 for 2026.
Sequencing changes the outcome substantially. Selling the property before surrendering the green card means regular capital gains tax with a foreign tax credit available. Selling as a covered expatriate means the exit tax reaches your entire portfolio, including unrealized gains on things you haven’t sold. If you’re anywhere near the 8-year threshold and thinking of handing in the card, plan the sale and the expatriation together, not separately.