How does the US treat profits from selling a rental property abroad?

For US citizens and green card holders residing in Qatar, the gain from selling a rental property is subject to US capital gains tax. 

This includes accounting for depreciation recapture, a lesser-known facet that revises the property’s cost basis and potentially elevates the taxable gain. Those with mortgages settled at sale should also scrutinize their loan terms for any implications of phantom gains.

Is capital gain eligible for the Foreign Earned Income Exclusion?

Capital gains fall outside the FEIE’s scope, which exclusively highlights earned income. Thus, the profit from selling a rental property in Qatar, being investment income, remains taxable in the US, with no FEIE applicability.

What’s the tax scenario for selling a principal residence in Qatar?

Selling your principal residence offers tax advantages. Living in the property for at least two of the five years before the sale qualifies you for an exclusion of up to US$250,000 (or US$500,000 for joint filers) from your taxable income. This considerable benefit can significantly reduce, or even nullify, the capital gains tax on the sale.

Can expenses related to home improvement and sale reduce my taxable gain?

Absolutely. Investing in home improvements and incurring certain sale-related expenses can adjust your property’s cost basis, diminishing the capital gain or amplifying a loss. This adjustment directly impacts the capital gains tax owed, potentially offering substantial tax savings.

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