Selling a property after/while abandonning permanent resident status

[jack129]

Hi,
I'm currently a Lawful Permanent Resident in the US (green card holder), and I own a piece of unimproved land in the US, that I'm trying to sell. I'm likely to have to leave the country and abandon my residency in the US to establish my new residency back in my country of origin, before my property is sold. I'm clearly not gonna make any profit from the sale but in that case I'll be selling while I'm a foreign resident. My question is that gonna affect the taxes I'll have to pay. It is my understanding you don't have to pay taxes if you don't make a profit from inside the US. What are the rules if you are outside the country? (meaning from the US point of view, I know rules apply as well from the other country).
Thanks!

 

[Taxing Matters]

Hi,
My question is that gonna affect the taxes I'll have to pay.

It might. Not knowing the rest of your financial situation, the timing of losing your permanent resident status, and the number of days you have physically spent in the US over the past three years, it's impossible to say how it might affect it. A key factor here is when you lose your status as a U.S. person under federal tax law. And that might not be the same date as losing your permanent residence status. If you qualify as a U.S. person then your sale will be handled like the sale of any other home sold by citizen or resident of the U.S. But you lose your US person status, you will be treated as an alien for federal tax purposes. See IRS publication 519 which covers how aliens are taxed in the U.S. In general aliens are taxed the same as citizens/residents of the U.S. on the sale of a U.S. real property interest (USRPI). That means your gain will computed the same way and if you have no tax gain then there is no federal tax to pay. The tax gain will be the net sales price (gross proceeds of the sale less sales expenses) less your basis in the property. You may end up with a gain/or loss different than you expect if you don't know what goes into the basis computation. IRS publication 523 will take you through how the gain/loss is computed. Note that if you do have a gain and that gain is taxable in your home country, payment of the home country tax will allow you to claim a foreign tax credit on your U.S. tax return. That generally prevents double taxation of the income in the U.S. and the home country. It will also matter which country is your home country. The U.S. has tax treaties with most nations with a significantly large economy and that tax treaty may change how the income is taxed either in the U.S. or the home country. In general, the sale of a USRPI is excluded from the benefits of most treaties for U.S. tax purposes, but last I checked there were one or two old tax treaties that did not directly address USRPIs.

Perhaps the biggest thing to be aware of should you lose your status as a U.S. person before you sell it is that when an alien sells a USRPI the U.S. imposes a 10% withholding tax requirement on the sale. This means that the buyer, broker, or title company handling the sale would have to withhold 10% of the gross sales price and remit that to the IRS. Like any other withholding credit, that amount then is a credit on your return for the year. If the tax on the gain will be less than the 10% withholding amount you may request a withholding certiificate from the IRS authorizing a lower withholding amount. Note that you need to allow at least a couple of months to get that withholding certificate from the IRS, so that would affect the timing of your sale. See the IRS page on reporting and paying tax on USRPIs.

Note, too, that the state in which the property is located may impose a tax on the gain, too. Most states will treat the sale exactly the same whether you are a U.S. person or not. The tax you pay to the state may also entitle you to a credit on your federal income tax return.

 

[jack129]

[...]

Thank you for taking the time, that is really helpful information.