Americans who are moving to France often wonder whether and when to sell the home they already own in the U.S. It is an important question, and the timing of it can make a big difference to your tax bills. Here are a few things to know as you think about your move.
1. U.S. tax law gives you a tax break when you sell your primary home.
The U.S. taxes capital gains when you sell a property, but there is a partial exemption for your primary residence. To qualify for it, you need to have owned the residence and have used the residence as your main home for at least 2 of the five years before the date of the sale. If you meet those criteria, you can collect the first $250,000 of capital gains from your property tax-free. If you are a couple, that doubles to $500,000. If you are unsure, you can use the IRS site here to estimate the capital gains for your home.
If you wait more than three years to sell your old home after moving, your former home becomes a secondary property. At that point, any capital gains from the sale will be treated exactly like capital gains on any other asset. If you owned the asset for at least a year, the gains are “long-term” and almost always will be taxed at 0%, 15%, or 20%, depending on your total income for the year. “Short-term” gains are lumped in with your regular income, so the rates can go as high as your top tax bracket – usually more than the long-term rates.
2. When you have taxes in two countries
If you have sold the property before your move to France, you will pay only U.S. taxes on it no matter what point in the year you sell or move. If the sale happens in the same tax year as your move, you will report the income in your French tax declaration but on a line dedicated to income that French authorities will not tax.
If, on the other hand, you still own the property when you move to France, you need to think about French taxes, too. These will be calculated as if you owned the property in France. The French tax authorities then will give you a credit for the capital gains you paid in the U.S. Depending on the numbers, this could wipe out any French tax or it could mean additional taxes owed to France.
So, how do you calculate French capital gains taxes?
France gives you a different tax break for selling your primary home.
France, too, allows homeowners to keep the proceeds of selling a primary home tax-free, but the conditions are different. Specifically, France has only a “reasonable” waiting period for the sale after you decide to move. The law here is not precise. An owner who moves and puts their home on the market in the same few months will likely qualify even if the sale takes months — possibly years. But if the owner rents out the home or holds it without trying to sell, the home loses its status as a primary residence (in French, la résidence principale).
As in the U.S., the former-primary home is now just a normal property subject to capital gains. But something very different happens in France. To encourage long-term investment in property, French capital gains tax rates begin to go down after you have owned a property for five years. This French abatement chart (offered in English) shows how your tax rate decreases over the years, so that after you’ve held the property for 22 years, you pay no income tax. Social charges decrease, as well, and disappear completely at 30 years.
Keep in mind that both France and the U.S. have other exemptions, deductions, and high-income provisions related to property sales that might apply to your situation. But for most people, knowing when to sell a home is going to depend on its value, how long you’ve owned it, what your U.S. income tax rate is for the year, and what your plans are for the future.
And if you just need to rent out the old home for a while? Income from rental property in the U.S. is taxed only in its home country.
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