Selling Property in Australia as an Expat: US Tax Guide
If you are a US citizen or Green Card holder selling property in Australia as an expat, two tax systems usually apply. The ATO taxes the sale based on your Australian tax residency on the contract date, and the IRS taxes the gain because the US taxes citizens and Green Card holders on worldwide income. Start by confirming whether you are an Australian resident or a foreign resident for tax purposes on that date. Your Australian tax residency status at the time of sale affects your eligibility for the main residence exemption and your withholding obligations.
Withholding is collected from the sale price as a prepayment of Australian tax, which is not the same as the tax on the gain. Your residency history throughout ownership can also affect the capital gains tax (CGT) discount available. Calculate the US gain separately under US basis, currency conversion, and home-sale rules.
This guide covers Americans still living in Australia and Americans who have moved away and kept or sold their Australian home or investment property. Australian rules changed in 2017, and again in 2025, so older guidance can be out of date.
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.
Jonathan also talked about family tax benefits in Australia. Schedule a consultation with Jonathan today*.
*30-minutes US$347.
Table of Contents
At a glance: selling property in Australia
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Question |
Answer |
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Does Australia tax my sale? |
Potentially. Australian real property is within Australia’s CGT rules. Residents may qualify for the main residence exemption. Foreign residents need to satisfy both the life events test and the usual exemption conditions. |
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Is there withholding when I sell? |
Generally, 15% for contracts from January 1, 2025, unless a resident seller supplies a clearance certificate or an ATO variation reduces withholding. It is a prepayment of tax. |
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Does the IRS tax the sale? |
US citizens and Green Card holders calculate the gain in US dollars. A fully excluded home sale generally need not be reported unless Form 1099-S was received; rental-property reporting can differ. |
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Can I use the US home sale exclusion? |
Possibly. The full exclusion generally requires the two-out-of-five-year ownership and use tests and the two-year look-back rule. The limits are US$250,000 or US$500,000 for qualifying joint filers. |
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Can I claim a foreign tax credit? |
Often. Australian tax on the gain can generally offset US tax on the same gain using Form 1116, but excluded gain produces no US tax to offset. |
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Do I report my sale proceeds in my bank account? |
Possibly. A Report of Foreign Bank and Financial Accounts (FBAR) is generally required when foreign accounts exceed US$10,000 at any point in the year, and Form 8938 may apply at higher thresholds. |
Am I an Australian resident or a foreign resident when I sell?
Australian tax residency can differ from your citizenship or visa status. Holding a visa does not by itself make you an Australian tax resident. For a property sale, the CGT event generally occurs when the sale contract is signed.
If you have left Australia, do not assume you are still a resident. The ATO confirms your residency status for withholding purposes when you apply for a clearance certificate, so check your position before you list the property.
Does Australia tax my main home?
It depends on your residency status. If you are an Australian resident and the property was your main residence throughout your ownership, the main residence exemption generally removes the gain from Australian tax. A partial exemption may apply if you rented the home out or used it to earn income.
If you are a foreign resident when you sell, you are not entitled to the main residence exemption unless you satisfy the life events test and the usual exemption conditions. You must have been a foreign resident continuously for six years or less. During that period, you, your spouse, or your child under 18 must have had a qualifying terminal medical condition; your spouse or child under 18 must have died; or the CGT event must have arisen from a formal agreement following a marriage or relationship breakdown. After six years as a foreign resident, even a life event does not restore the exemption.
Australia removed the exemption for foreign residents from May 9, 2017. Homes already owned on that date could still use it if sold on or before June 30, 2020, but that transition period has ended, and the old six-year absence rule does not rescue a foreign resident who is denied the exemption.
How much Australian CGT do I pay as a foreign resident?
Foreign residents pay Australian CGT on taxable Australian property, such as real estate. Your net capital gain, after applicable losses and concessions, is included in taxable income. For 2026–27, the standard marginal rates for individuals who are foreign residents for the full year are 30% on the first AU$135,000, 37% on the portion above AU$135,000 up to AU$190,000, and 45% on the portion above AU$190,000. There is no tax-free threshold or Medicare levy for full-year foreign residents. Check the rules for the income year of your sale, especially if your residency changes during that year.
Foreign or temporary-resident periods after May 8, 2012 can reduce the 50% CGT discount, including for property bought before that date. For property acquired after May 8, 2012, no discount is available if you were a foreign or temporary resident throughout ownership, eligible Australian-resident periods may support an apportioned discount. Property held on or before May 8, 2012 has additional apportionment and, in some cases, valuation rules.
You generally declare the gain on an Australian tax return for the income year in which the contract was signed. Australia’s income year runs from July 1 to June 30, which does not match the US calendar year. For US tax purposes, the sale date generally depends on when ownership transfers or the buyer assumes the benefits and burdens of ownership.
Selling Property in Australia? Make Sure You Understand Your US Tax Obligations
What is the 15% withholding when I sell as a foreign resident?
Foreign resident capital gains withholding (FRCGW) applies to real property sales. The ATO says the purchaser must withhold the full rate unless the seller is an Australian resident with a clearance certificate, or a foreign resident with a variation notice that specifies a reduced rate. For contracts entered into on or after January 1, 2025, the rate is 15%, and the old AU$750,000 value threshold no longer applies.
On an AU$1,000,000 sale with no variation notice, the buyer withholds AU$150,000 at settlement. That amount is a prepayment, not your final tax. You can claim a credit for it when you lodge your Australian return, and the final tax is settled then.
Australian residents need a clearance certificate to avoid withholding, and clearance certificates are generally valid for 12 months, so it helps to apply early. Foreign residents cannot get a clearance certificate. They can apply for a variation notice before settlement if they have a reason, such as capital losses or a reduced tax liability. Allow up to 28 days for processing and provide the issued certificate or variation notice to the purchaser by settlement. Each owner needing a certificate or variation must apply separately.
How does the US tax the sale?
Calculate your US gain in US dollars. For a purchased property, start with the purchase price and eligible acquisition costs, translated at the relevant transaction-date rates. Add qualifying improvements using the rates when those costs were paid, and reduce basis for depreciation allowed or allowable and other required adjustments. Translate the sale proceeds and selling expenses at their relevant transaction-date rates, then subtract adjusted basis from net proceeds. The value of your own labor is not a cost you can add.
Consider a simple example with illustrative exchange rates. A single filer buys an apartment for AU$600,000 when AU$1 equals US$0.75, so the basis is US$450,000. The filer sells it for AU$900,000 when AU$1 equals US$0.65, which is US$585,000. The Australian dollar gain is AU$300,000, but the US gain is US$135,000. This illustration ignores acquisition and selling costs, improvements, depreciation, and any home-sale exclusion; the gains shown are not the final taxable amounts.
Most taxable long-term capital gains from property held for more than one year are taxed at 0%, 15%, or 20%, depending on taxable income. Rental or business property may also involve depreciation-related tax and Section 1231 rules. A 3.8% net investment income tax (NIIT) can also apply if your modified adjusted gross income exceeds US$200,000 for single filers or US$250,000 for joint filers. You generally report the sale on Form 8949 and Schedule D. However, fully excluded home sales may not require reporting unless Form 1099-S was received. Rental or business property sales may require Form 4797.
Can I use the US home sale exclusion on my Australian home?
Yes, if the home qualifies. Under the home sale exclusion, you can exclude up to US$250,000 of gain, or up to US$500,000 on a joint return, if you owned the home for at least 24 months and used it as your main home for at least 24 months during the five years before the sale. The home can be located anywhere, including Australia. You generally cannot use the exclusion more than once every two years, and the net investment income tax does not apply to excluded gain.
For the full US$500,000 joint exclusion, at least one spouse must meet the ownership test, both must meet the use test, and neither may have used the exclusion for another sale in the preceding two years. A reduced exclusion may be available for a qualifying work move, health reason, or unforeseen circumstance even if the full tests are not met. The Foreign Earned Income Exclusion does not apply to a property sale because it covers earned income, not capital gains.
If the home-sale exclusion covers your entire gain, there is no US tax on that gain to offset. The US exclusion does not reduce Australian CGT. Assess any foreign tax credit under the Form 1116 limitations rather than assuming the US exclusion will reimburse the Australian tax.
Should I add my Australian spouse to my US return to claim US$500,000?
If your spouse is a nonresident alien for US tax purposes, a qualifying election may allow you to file jointly. Australian citizenship alone does not determine your spouse’s US tax status. A US citizen or resident alien and their nonresident spouse generally make the election together, and the spouse needs an SSN or ITIN. The election brings both spouses’ worldwide income into the US income tax system for the election year and generally for later years until it ends or is suspended. It does not waive the home-sale exclusion tests. Get professional advice before making it.
How does the foreign tax credit work on a property sale?
When selling property in Australia as an expat, the Australian tax you pay on the gain can generally offset US tax on the same gain through the Foreign Tax Credit, claimed on Form 1116. However, the credit is subject to foreign-source income limitations, applicable credit categories, and timing rules. Foreign tax credits cannot offset the 3.8% Net Investment Income Tax. Do not automatically claim the full 15% Australian withholding as a US foreign tax credit: only qualifying legal and actual Australian tax paid or accrued is eligible, and refundable excess withholding does not qualify.
The US-Australia tax treaty lets Australia tax gains on Australian real property, but the treaty’s saving clause keeps US taxation of citizens in place, so the credit does the work of preventing double taxation.
Timing matters. Because the Australian income year ends on June 30, the credit may land in a different US tax year. Unused credits can generally be carried back one year and forward ten years, and Australian rates for foreign residents often exceed US long-term capital gains rates, which can leave excess credits.
What if I am selling an Australian investment or rental property?
Investment properties that were never used as a primary residence generally do not qualify for the US home sale exclusion. However, a former main home converted into a rental property may still qualify if the ownership and use tests are met, subject to depreciation and nonqualified-use rules. Australia’s six-year absence rule may preserve relief for an eligible former home, but it does not override the denial of the main residence exemption when you sell as a foreign resident without meeting the life events test.
US depreciation deductions allowed or allowable generally reduce the property’s adjusted tax basis. On sale, gain attributable to depreciation may be treated as unrecaptured Section 1250 gain, subject to a maximum federal tax rate of 25%. Australian deductions for building costs are not the same as US depreciation, so keep records for both. The home-sale exclusion cannot shelter gain attributable to depreciation allowed or allowable for periods after May 6, 1997.
If the property was rented, you also report the rental income on your US return each year, and Australian tax paid on it can generally be claimed as a foreign tax credit.
Do I need to report my sale proceeds and foreign accounts?
Possibly. If your foreign accounts total more than US$10,000, or equivalent in other currencies, at any point in the year, a US person generally must file an FBAR (FinCEN Form 114). Sale proceeds deposited into an Australian account can push your total over that line, even if the money moves out quickly. Form 8938 may also apply at higher thresholds. Directly owned foreign real estate itself is not reported on either form; the foreign account holding the proceeds may be. Form 8938 thresholds depend on filing status and whether you meet its living-abroad test, and generally no Form 8938 is required if you do not have to file an income tax return.
What steps should I take when selling property in Australia as an expat?
- Confirm your Australian tax residency status for the contract date.
- Check whether the main residence exemption or the life events test applies.
- Apply early for a clearance certificate if you are a resident, or a variation notice if you are a foreign resident with grounds for a reduced rate.
- Gather the purchase contract, improvement invoices, agent and legal fees, ATO notices, certificates, and bank statements showing the proceeds, and record the exchange rate and its source for each date.
- Calculate the US gain in US dollars and check the home sale exclusion.
- Lodge any required Australian return for the income year of the contract and claim credit for any withholding.
- File the applicable US forms: Form 8949 and Schedule D for a reportable capital-asset sale, Form 4797 where required for rental or business property, Form 1116 for an eligible foreign tax credit, Form 8938 if required, and Form 8960 if NIIT applies. File any FBAR separately with FinCEN.
Frequently Asked Questions
What if I still live in Australia?
Generally, there is no Australian CGT if you are an Australian tax resident and satisfy the full main residence exemption conditions. US tax may still apply if the US exclusion is unavailable, the gain exceeds your applicable limit, or part of the gain is ineligible for exclusion. Calculate the US gain in US dollars.
Can I avoid the 15% withholding?
Not entirely, but you may be able to reduce it. Foreign residents cannot obtain a clearance certificate, but they can apply for a variation notice that reduces the withholding rate if there is a reason, such as losses or a reduced tax liability. Apply before settlement and give the notice to the purchaser.
Do I need to lodge an Australian tax return after I sell?
Generally, yes if you are a foreign resident. Foreign residents declare the capital gain and claim credit for withheld amounts by lodging a tax return for the income year in which the contract was signed.
Can I defer US tax with a like-kind exchange on Australian property?
Possibly, but the rules are strict. A like-kind exchange under section 1031 applies to real property held for investment or business, and US real property is not like-kind to foreign real property. Exchanging Australian property for other Australian property may qualify, so get advice before you sell. For a deferred exchange, replacement property generally must be identified within 45 days and received within 180 days or the tax-return due date, including extensions, if earlier. Arrange the exchange before disposing of the property; simply selling and later buying another property is not enough. US deferral does not automatically defer Australian CGT.
What if I sell at a loss?
A loss on your personal home is not deductible for US purposes. A loss on investment property held as a capital asset may be a capital loss; rental or business property held for more than one year can instead fall under Section 1231, where a net loss is generally ordinary. Currency movements can turn an Australian-dollar loss into a smaller US-dollar loss or even a gain.
