Guide to International Money Transfers After Selling US Property

Selling your house is complicated enough. But if you’re selling it to move abroad, things might get even more complex, especially if you plan to transfer money from the sale internationally.

If the seller involved in a real estate transaction in the U.S. is a foreign person or entity, a portion of the profits will be withheld to cover capital gains taxes. If you are a U.S. person selling your property and plan to move abroad, you will pay capital gains taxes when you file your annual tax return. International money transfers can be done through wire transfers, but you should check for hidden fees or poor exchange rates before proceeding. If you move abroad as a U.S. expat and transfer large amounts of money internationally to foreign bank accounts, you may have to report your foreign financial holdings annually. If you only want to move abroad for a short period using a digital nomad visa, fully expatriating and selling your home could cause more problems than it solves. However, if you plan to move abroad indefinitely, selling your house and transferring money to a foreign bank account might positively affect your U.S. taxes.

To get assistance from the tax CPAs at US Tax Help, call (541) 362-9127 now.

How to Transfer Money Internationally After Selling US Property

If you recently sold your home to move abroad and expatriate from the United States, you can transfer funds from the sale to your foreign bank account.

Expats who want to transfer funds from their American bank accounts to foreign ones can typically do so through wire transfers. Some expats elect to close domestic bank accounts, as keeping them open might count as having ties to their previous states of residence, making them responsible for filing a state tax return.

Large amounts of money, such as entire bank accounts or the profits from a real estate transaction, might be transferred in installments. Furthermore, international money transfers for large amounts might take several business days, which is important to keep in mind.

You will not need to pay taxes on transferring money from one bank account to another, even if you transfer it to a foreign bank account. That said, your bank will submit a Currency Transaction Report for any money transfers, withdrawals, deposits, or currency exchanges of over $10,000.

How Which US Real Estate Transactions Does FIRPTA Impact?

The Foreign Investment in Real Property Tax Act (FIRPTA) was created to ensure foreign sellers pay capital gains tax on profits from the sale of U.S. real property. Depending on your citizenship status and whether or not you are buying or selling property, FIRPTA withholding might apply to your situation.

Start by identifying your role in the real estate transaction. For example, if you are the seller and not an American citizen, the sale will be subject to FIRPTA withholding. If you are an American citizen and the buyer in a transaction with a foreign person or entity, the sale will also be subject to FIRPTA withholding. If you sell your U.S. property to another person before moving abroad, the sale will not be subject to FIRPTA withholding.

If a sale is subject to FIRPTA, some of its capital gains, generally 15%, will be withheld. Withheld funds go to the IRS. The foreign seller could then get back some of the withheld funds, provided the capital gains they owe are less than the withheld amount.

FIRPTA withholding only applies to real estate transactions for real property in the U.S. involving foreign sellers. If you sell your home to move abroad as an American expatriate, you will not have to worry about FIRPTA withholding. Furthermore, if you expatriated to the U.S. for a period, bought property there, and now want to sell it and move out of the United States, FIRPTA withholding may not apply, provided you were a U.S. tax resident.

Currency Exchange Rate Concerns for International Money Transfers After Selling US Property

Depending on where you move to after selling U.S. property or where you currently live, if you are a non-U.S. citizen or resident who recently sold U.S. property, the exchange rate might be a serious concern stopping you from making an international money transfer.

You can strategically plan when to transfer money internationally when exchange rates are best. Currency exchange rates vary depending on the current supply and demand. They change constantly, though sometimes only minimally.

The cost of transferring money internationally might depend on the service you use. Banks might charge fees when transferring very large amounts of money to foreign financial institutions, such as the profits from real estate transactions. You can also consider the currency exchange rate when deciding whether or not to transfer all or some of the designated funds at once or keep some of the money in a domestic bank account for the time being.

FBAR Reporting Thresholds for International Money Transfers to Foreign Accounts

If you sell U.S. real property, you may have to pay taxes on capital gains from the sale, whether when you file your annual tax return or through FIRPTA withholding, depending on your residency and citizenship status. You don’t have to pay taxes when transferring profits from the sale from one bank account to another. But, you may have to report your foreign bank account if its contents are large enough.

For example, if you sell U.S. property and then move abroad, you might transfer the money from the sale to a foreign bank account. If you have a foreign bank account with more than $10,000 or multiple bank accounts with that amount across them, you must report as much to the Financial Crimes Enforcement Network (FinCEN).

Expats or American residents with foreign bank accounts can do this by completing an FBAR, a Report of Foreign Bank and Financial Accounts. Our tax CPAs can help expats do this by filing FinCEN Report 114 and submitting it online through FinCEN’s secure website by Tax Day.

If you do not file an FBAR when required, you could face a $100,000 fine or one equal to half the contents of your foreign bank accounts, though penalties for non-willful violations are typically lower. Because the reporting threshold for an FBAR is relatively low, expats who make international money transfers to foreign bank accounts after selling their U.S. property typically have to file an FBAR.

Paying Capital Gains Taxes on the Sale of US Property from Overseas

If you sell U.S. property and then move abroad, you still have to pay taxes on capital gains from the sale. Depending on how suddenly you moved after your closing date, you might have to pay capital gains taxes from overseas.

Again, if you’re not an American citizen or resident, FIRPTA withholding will apply to the sale, and you will pay capital gains taxes that way. As an American citizen, you must report capital gains and pay the applicable taxes soon after the sale. You would pay short-term capital gains taxes if you owned the property for one year or less before selling it. If you owned the property for more than one year, you would pay long-term capital gains taxes or no taxes, depending on the rate for your taxable income.

You will report capital gains and pay the necessary taxes when you file your annual tax return with the IRS. If you move abroad immediately after the sale and are overseas during tax season, you must file your taxes internationally.

In addition to paying capital gains taxes on the sale of U.S. property as an expat, you must report your worldwide income to the IRS. If you have only recently moved abroad, much or all of your income might be taxable, as you might have yet to establish residency in the foreign country you currently live in. Regardless, our tax CPAs can help prepare, plan, and file your annual tax return while living abroad as an expatriate.

When and When Not to Sell US Property Before Moving Internationally

If you plan to move internationally, selling your U.S. property could help you achieve that dream. However, if you only want to move temporarily, getting rid of your assets might not be wise.

When to Sell

When expats keep real estate in the U.S. while living abroad, they might face more tax implications. In addition to property taxes, expats may also have to pay state income tax to the state where the house is located. Even if you live abroad full time, the fact that you still have a residence in an American state could result in a tax liability. Selling your property can help fund your move overseas, establish residency in a foreign country sooner, and eliminate your tax obligation to your previous state of residence.

When you arrive in your new country of residence and have to choose whether to buy or rent property, buying might help you establish residency. Making a concerted effort to establish residency in a foreign country right away is crucial, as the IRS uses residency tests to determine if expats qualify for tax perks, such as the foreign earned income exclusion (FEIE) and the foreign tax credit.

When Not to Sell

As our world becomes increasingly digital, more companies and countries are embracing the concept of digital nomad visas. Many appealing destinations, like Spain, Mexico, Portugal, Iceland, Greece, and many more countries, offer one to two-year digital nomad visas, letting travel enthusiasts spend longer periods exploring foreign countries while giving them the legal status to work remotely abroad.

If you get a digital nomad visa and are only abroad for a short time, you may not have to sell your home. If you do, you might have to go through the hassle of reporting the sale and paying capital gains taxes, transferring the profits from the sale and other funds to a foreign bank account, and the additional reporting requirements of holding large sums of money in overseas bank accounts as an American citizen.

While there are many perks to becoming a digital nomad, there are also disadvantages, such as the risk of double taxation and the complicated application process. Since digital nomad visas are only a couple of years at most, they might not be long enough for expats to gain tax residency status in a foreign country, absolving them from double taxation. Even if you qualify for expat-specific exclusions, some, like the FEIE, would not apply to your situation as an expat employed by an American company on a digital nomad visa since the FEIE only includes income from foreign sources from taxation by the IRS.

Call Our Tax Accountants for Guidance Today

To learn more about what our tax CPAs can do for you, call US Tax Help today at (541) 362-9127.