U.S. TAX GUIDE IN FRANCE
How is capital gains tax applied when selling your home in France?
If you sell your primary residence in France and have lived there for at least two out of the five years before selling, you can exclude up to $250,000 of the gain from your income if you’re single or married filing separately.
If you’re married filing jointly, the exclusion is up to $500,000. For example, if you realize a net gain of $300,000, you can exclude $250,000, leaving $50,000 subject to capital gains tax.
Can you deduct costs associated with property investments?
Yes, you can deduct certain costs like renovations, legal fees, and real estate commissions from your capital gains. These expenses are added to the property’s cost basis, reducing the taxable gain from the sale.
What happens if you rent out your property before selling?
Renting out your property complicates the tax situation. The IRS requires a detailed calculation to determine how many days the property was rented versus how many days it was your primary residence. If you meet the primary residence criteria, you may still qualify for the exclusion. However, if it’s purely an investment property, the exclusion does not apply.
How does French tax on rental income affect your US tax return?
You can claim a credit for taxes paid on rental income in France on your US tax return. This prevents double taxation on the same income, as foreign tax credits reduce the amount owed in the US.
What is depreciation recapture?
Depreciation claimed on a rental property must be recaptured at the time of sale. This means the amount of depreciation claimed over the years is added back to your income and taxed as part of the capital gains, potentially increasing your overall tax owed.
What if the property was always rented out?
If the property was rented out for the entire period of ownership and never used as your primary residence, you cannot claim the $250,000 or $500,000 exclusion. All profits from the sale would be subject to capital gains tax. However, improvements made to the property can still be deducted from the overall gain to reduce the taxable amount.
