Capital gains tax?

[CarverFan]

A US friend of mine is selling his apt here in Bs As and asked me to post a couple of questions...

1. Does anyone know how the US capital gains tax is determined?
2. If he hasn't been filing with the IRS for several years due to low income, would the funds entering his account induce an audit even if his profit on the sale was under US$ 10,000? Thanks!

 

[Aguafresca]

He Carver fan> YOu have your US tax advisor here. Capital gains tax in the US for individuals is calculated on the difference between the selling price and price of acquisition of the property (less depreciation if applicable + costs of acquisition). On that amount, 15% is applicable (the rate is the reduced one). IS that investment property or household?

2.- He should calculate if the gain plus other income (i.e investment, employment income) surpass the threshold. If it does, he will need to file a return. Note that if he is receiving employment income part of most of income is tax exempted.

Hope it helps. Saluditos. Irene

 

[Aguafresca]

One question, which is important to determine whether your friend should file or not, I assume he has other income (employment income) so, he may surpass the threshold for the year if he sales his property. As Steve says, it is better to be safe than sorry and file the return, which can be prepared and filed for free if gross income is below 50k (through the IRS website)
Also note that all Americans citizens, greencard holders and residents need to report all the banking and financial accounts they have overseas. This form (TDF) must be filed yearly when you have at any time during a calendar year more than $10,000 in one or more foreign bank and financial accounts. That means all foreign accounts are combined on any day during the year to determine if the over $10,000 figure is reached. This is an informational return filed before the Treasury but non compliance involves penalties of up to 50k.

 

[CarverFan]

Many thanks Aguafresca and steveinbsas for all your help! I will pass this on to my friend...

 

[Philsword]

I don't think enough information has been provided for an answer. If it's his principal residence and he meets all the rules capital gains doesn't even come into play.

 

[Aguafresca]

That is why I asked if the local apt was his principal residence since, normally if he has owned it for 2 out of 5 years and lived there for the same time frame, normally it is exempted. But only if he meets the use and ownership test.

Hope it helps. Irene

 

[Philsword]

That is why I asked if the local apt was his principal residence since, normally if he has owned it for 2 out of 5 years and lived there for the same time frame, normally it is exempted. But only if he meets the use and ownership test.

Hope it helps. Irene

Your are correct but I don't see where you asked that. My point is he hasn't provided enough information for me or anybody else to determine the correct response to the main question, does he owe tax on the sale of the property. In short if he meets the rules he doesn't owe anything, this is what they need to determine.

 

[Aguafresca]

mmmhh... I think I missed asking the purpose of the property but always assumed it was a secondary property, not the only one (the IRS tends to classify principal residence to the one located in the US), as for other cases I have been worked on (I used to be consultant handling expat tax in the US). At the end of the day, it is bad to give advice through the internet without knowing the real facts and gather all the info. You are right. But now with the new HIRE regs US citizens and greencard holders should be extra cautious, since the rules now are tighter... the IRS is searching for money and the expats are the easy targets.

 

[cbphoto]

You are exempt of the 1st $200K capital gains if apartment/house was your main residence for at least 2 years of the last 5.
That being said..you bought your house/apartment over 2 years ago and only made $10K on it? Ooops!

 

[CarverFan]

Thanks Philsword, yes it has been his primary residence for at least 5 years so it seems he's exempt...steveinbsas, thanks, that's useful info about the taxact online.