US Tax resident with Australian Property: What You Need to Know – attention all Australian expats in the US with a slice of Aussie real estate!
From an Australian perspective, selling your primary Australian home usually means you’re off the hook for local taxes.
But here’s the catch: to enjoy this Aussie tax break, you need to be an Australian tax resident when you sell.
If you’re not living in Australia, you won’t get this exemption.
Now, for my fellow US citizens and Green Card holders, there’s another layer to this. Even if Australia doesn’t bill you, Uncle Sam might.
So, it’s crucial to plan your taxes right.
Here’s a silver lining: US taxpayers can exclude a gain of up to $500,000 from the sale of their main home ($250,000 for those filing separately).
But to tap into this perk, you need to have lived in that home for at least two of the five years before selling. This is what the tax pros call the “Section 121” rules.
A couple of things to keep in mind:
- The Section 121 exclusion won’t cover the gains from any rental or “nonqualified” use of your home.
- If you’ve claimed depreciation deductions in the past, you’ll need to pay tax on those gains when you sell.
- Any taxable gain will be hit with US long-term capital gain taxes, which could be anywhere from 15-20%, depending on your income that year. But if you’ve paid any Australian taxes on the sale, you’ll get a credit for that.
- And don’t forget about the Net Investment Income Tax, sometimes called the Obamacare tax. That’s an extra 3.8% on your taxable gain.
Navigating the tax waters of two countries can be tricky. If you’ve got questions about Australian or US taxes, don’t be a stranger.
Reach out, and let’s untangle those tax knots together!