How to avoid Capital Gains Tax on investment property

Published on September 16, 2025

Jonathan Rose, an IRS Enrolled Agent with 15 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.

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How Capital Gains Tax works in Australia for US expats

In Australia, you can reduce or avoid capital gains tax on investment property by using the main residence exemption, the 50% CGT discount, and careful timing of your residency status.

CGT kicks in on properties bought after September 20, 1985, and any profit you make from the sale is treated as income in the year you sell it.

Your tax residency matters a lot here. If you’re considered an Australian tax resident, you’re taxed on your worldwide income and gains. If not, Australia still taxes you on property located in the country.

Meanwhile, because you’re a US citizen, you also need to report the sale to the IRS. The US taxes your global income, including capital gains, but you can usually get a foreign tax credit to help offset the US taxes.

Can you avoid or reduce CGT on your Australian investment property?

Yes, but it depends on your residency status in Australia.

Main residence exemption

If the property used to be your main home, you might qualify for what’s called the main residence exemption. However, if you’re a non-resident when you sell, it’s tough to qualify unless certain conditions apply, like if a life event occurred, such as a serious illness or death of a family member, within six years of moving out.

Additionally, from July 1, 2020, non-residents generally cannot claim the main residence exemption unless life event exemptions apply.

50% CGT discount

Generally, if you’ve owned the property for more than 12 months, Australia gives you a 50% discount on the capital gain. However, if you’re a non-resident at the time of sale, that discount may no longer apply to gains earned after May 2012.

You might be able to claim a partial discount for the time you held the property as an Australian resident or before the cutoff date.

Example scenario

Say you bought a rental in 2010, moved overseas in 2015, and sell it in 2025. You might still get a partial CGT discount, but only for the years you were an Australian resident or gains made before the rule changes in 2012.

Why timing and residency matter

Holding the property for more than 12 months can help you qualify for a CGT discount.
Selling while still an Australian resident generally puts you in a better tax position.
Certain life events might make you eligible for the main residence exemption, but only in narrow circumstances.

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Does the 50% CGT discount apply to US expats?

The 50% CGT discount applies if you’ve owned a property for more than 12 months and are an Australian tax resident at the time of sale. That holding period is key to unlocking the discount.

But not everyone qualifies. If you’re classified as a non-resident or even a temporary resident for Australian tax purposes, the rules are a bit stricter. In most cases, non-residents don’t get the CGT discount at all for gains that build up while they’re not considered residents. So if you’ve moved abroad or changed your residency status, you might lose access to that 50% break—even if you’ve held the property long-term.

There are also situations where you might qualify for a partial discount, depending on how long you were a resident while you owned the property. It’s a bit of a calculation, and your status at the time of the sale really matters.

Navigating US tax obligations on Australian capital gains

Even though you’ve already dealt with Capital Gains Tax (CGT) in Australia, the IRS expects you to report that gain on your US tax return too. It’s all part of being taxed on worldwide income as a US citizen.

You’ll report the sale on Form 1040, and then break it down using Form 8949 and Schedule D. These forms let you show how much you bought the property for, how much you sold it for, and what the gain or loss was.

To avoid being taxed twice on the same profit, you can usually claim a Foreign Tax Credit using Form 1116. Basically, it gives you credit for the CGT you have paid in Australia.

Just make sure you’re diligent with documentation and include any proof of payment to the Australian Tax Office.

Also, be aware of currency conversion rules. The IRS wants everything in US dollars. So you’ll need to convert your purchase price, sale price, and any improvements or expenses using exchange rates from the relevant dates.

Another thing to consider: timing differences. The Australian and US tax years don’t match up exactly, so sometimes the credit won’t apply until the following year. If that happens, you might be able to carry the unused portion forward to future returns.