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us expat tax guide – france

How does capital gains tax apply when selling your home in France?

When you sell your primary residence in France, where you have lived for at least two out of the five years before selling, you can exclude up to US$250,000 of the gain from your income if you’re single or married filing separately, and up to US$500,000 if you are married filing jointly. 

For example, if you sell your home and realize a net gain of US$300,000, you can exclude US$250,000 from taxes, leaving only the remaining US$50,000 subject to capital gains tax.

What if you’ve invested in your property? Can you deduct those costs?

Yes, you can deduct certain costs associated with buying, improving, and selling your property. These costs could include money spent on renovations, legal fees, and real estate commissions. These expenses are factored into the property’s cost basis, reducing the overall capital gain realized from the sale.

How does renting out your property affect capital gains tax?

If you rent out your property and then decide to sell it, the situation becomes more complex. The IRS requires a detailed calculation to determine how many days the property was rented versus how many days you lived in it as your primary residence. 

The US$250,000 or US$500,000 exclusion may apply if you meet the primary residence criteria within the specified period. However, if it’s purely an investment property, this exclusion does not apply.

What about taxes paid in France on rental income?

When filing your US tax return, you can claim a credit for taxes paid on rental income in France. This prevents double taxation on the same income, as the US tax system allows foreign tax credits to reduce the amount owed in the US.

Is there anything special about depreciation?

Yes, if you’ve claimed depreciation on a rental property, it must be “recaptured” at the time of sale. This means that the amount of depreciation claimed over the years is added back to your income and taxed as part of the capital gains. This can affect the overall tax owed after the sale of the property.

What happens if you’ve rented out the property the entire time?

If the property in France was rented out for the duration of ownership and never used as your primary residence, you cannot claim the US$250,000 or US$500,000 exclusion. In this case, all profit from the sale would potentially 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.

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