Are you a US Expat with an Australian Property?

US Expat Tax Australian Property

While from an Australian tax perspective, generally a sale of your Australian main residence will be exempt from an Australian tax. Importantly, to qualify for the Australian main residence exemption, the Taxpayer must be an Australian tax resident at the date of sale. Non-residents of Australia no longer qualify for the main residence exemption.

However, for US Citizens and US Green Card holders, it is also important to consider the US tax consequences on sale as the situation may arise where although there is no Australian tax liability, a US tax liability may exist.

US taxpayers may exclude up to $500,000 ($250,000 if filing separately) of gain realized on the sale of their principal residence. In order to use the exclusion, the taxpayers must have owned and used the home as principal residence for at least two years out of the five-year period immediately prior to the sale. These are known as the “Section 121” rules.

Note that the Section 121 exclusion doesn’t apply to gain linked to rental (“nonqualified”) use, a vital point to remember.

Note the tax implications when selling assets with prior-year depreciation deductions, as gain may incur taxation upon sale.

Any taxable gain is subject to US tax at long term capital gain rates, which will range from 15-20% depending on your other income in the year of sale. Any tax paid on the sale of a home in Australia will result in a credited amount.

Net investment income tax (also known as the Obamacare tax) of 3.8% may apply to the taxable gain as well.

Please do not hesitate to get in touch with any US Expat Tax Australian Property questions.