If you are a US citizen or green card holder with property in Australia, selling your property can get complicated when it comes to tax. Australia and the United States have different rules, and being aware of both can save you from unpleasant surprises.

The Australian Side

In most cases, Australians do not pay tax when selling their main home. This is called the main residence exemption.

However, this exemption only applies if you are an Australian tax resident at the time of sale. If you are a non-resident, you no longer qualify for this exemption. That means if you have moved overseas and sell your Australian property, Australian tax may apply to any capital gain.

The US Side

Even if you owe no tax in Australia, you might still have a US tax obligation. The US taxes its citizens and green card holders on their worldwide income, which includes property sales in Australia.

Under Section 121 of the US tax code, US taxpayers can exclude up to:

• $500,000 of profit if filing jointly, or

• $250,000 if filing separately,
  from the sale of their main home.
  To qualify, you must have owned and lived in the home as your primary residence for at least two of the past five years before selling.

Important Details

• The exclusion does not apply to gains from rental or investment use of the property.

• If you claimed depreciation deductions in prior years (for example, if you rented out the property), you may have to pay tax on that portion of the gain.

• Any taxable gain is subject to US long-term capital gains tax, usually between 15% and 20%, depending on your income.

• If you pay tax in Australia on the sale, you can usually claim a foreign tax credit in your US return to avoid being taxed twice.

In Summary

Selling an Australian property as a US expat can trigger tax in both countries. The rules depend on your residency, how long you lived in the property, and whether it was ever rented out. It is wise to speak with a cross-border tax adviser at Bates Cosgrave before selling so you can plan ahead.