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Q: US tax liability for overseas real estate transaction? ( Answered 4 out of 5 stars,   2 Comments )
Subject: US tax liability for overseas real estate transaction?
Category: Business and Money > Finance
Asked by: cetrans-ga
List Price: $50.00
Posted: 30 Sep 2006 18:36 PDT
Expires: 30 Oct 2006 17:36 PST
Question ID: 769806
I am a US citizen residing full-time in the US.

What are my US tax liabilities for the sale of real estate in Taiwan?
Is any documentation required when filing the personal income tax? How
would the gains be determined if the property was a newly built condo?

I'm also self-employed/sole proprietor. Will the real estate
transaction affect my estimated tax payment liability for the next tax
Subject: Re: US tax liability for overseas real estate transaction?
Answered By: keystroke-ga on 01 Oct 2006 09:13 PDT
Rated:4 out of 5 stars
Hello cetrans,

United States citizens, unlike those in most countries, must report
their earned income and file tax returns no matter where they live in
the world or how they earned that income. Most countries have tax
treaties with the US to prevent double taxation on income tax-- if you
live in Thailand, for instance, and pay income taxes to Thailand, you
will probably not owe income taxes to the US for the same money. There
are no tax treaties as far as capital gains go, but luckily for you,
Thailand treats capital gains as personal income tax, so as far as I
can tell the double taxation treaty would be in effect for you. I've
provided more detail on this later in my answer.

You would have to provide documentation of the purchase, and how much
you sold it for, accompanying your personal income tax return, both to
Thailand and to the US if you're filing returns with either of them.

by Don D. Nelson, Attorney at Law, CPA.

"Taxes on World Wide Income

U.S. Permanent Residents (green card holders) as well as U.S. Citizens
must report each year their income earned anywhere in the world. That
means your U.S. income tax return must include:


      Foreign dividends

      Rental Income Earned Abroad

      Foreign pension income

      Foreign capital gains or losses on stocks, bonds, real estate

      Foreign royalties

      All other foreign income"

The gains would be determined by how much you paid for the condo
initially-- did you pay to have it built? If so, how much did you pay?
How much did you then sell it for? The difference would be your
capital gains, or profit, and you would be taxed on that. If you
didn't pay to have it built and simply bought it a few months ago,
same thing-- if you sell it for more than you paid, you pay tax on the
resulting capital gains. The original cost to buy the home is called
the "basis" for tax purposes. The basis can be increased or decreased
due to certain factors. Here is the list from the IRS.

IRS on Capital Gains

"Basis is your investment in property for tax purposes. Before you can
figure any gain or loss on a sale, exchange, or other disposition of
property, or figure allowable depreciation, you must determine the
adjusted basis. Adjusted basis is the result of increasing or
decreasing your original basis according to certain events. Your
original basis is usually your cost to acquire the asset.

Increases to basis include but are not limited to:

. Improvements having a useful life of more than a year

. Assessments for local improvements

. Sales tax

. The cost of extending utilities lines to the property

. Legal fees such as the cost of defending or perfecting title

. Zoning costs

Decreases to basis include but are not limited to:

. Depreciation

. Nontaxable corporate distributions

. Casualty and theft losses

. Easements

. Rebates from the manufacturer or seller"

In addition, you may be liable for capital gains taxes on the property in Thailand:
"Employee Tax in Thailand"

Investment income and capital gains from sources in Thailand are
taxable except capital gains on the Stock Exchange"

However-- and you will certainly have to check with an expert on
this-- you may be in luck as far as "double taxation" goes. Thailand
does not treat capital gains as a separate tax from income tax, so the
double taxation treaty would most likely be in effect. An expert would
know for sure.

Tilleke and Gibbins Thai Law Firm-- FAQs: Taxation

"Q:  Does Thailand have a specific capital gains tax?
A:  There is no separate capital gains tax in Thailand. Capital gains
are subject to tax in the same manner as other income."

You could therefore simply file an income tax return with Thailand and
pay taxes, treating them as income, to Thailand, and then file your
return with the US and use the double taxation treaty to subtract the
difference from your US tax return. You must consult with a
professional about this, however; Google Answers can in no way
substitute for legal advice from a professional as you can see by the
disclaimer below.

If your gains are less than $80,000, you're exempt from paying taxes
in Thailand. However, then you would be liable for the capital gains
to America. Here are the Thailand tax rates:

Thailand Board of Investment

Personal Income Tax (Effective Jan. 1, 2002)
Level of taxable income (baht) 	Marginal Tax  Rate
0 - 80,000 	      exempt
80,001 - 100,000 	5%
100,001 - 500,000 	10%
500,001 - 1,000,000 	20%
1,000,001 - 4,000,000 	30%
over 4,000,000 	37%

The capital gains would not affect your tax rate, as far as I can
tell. If you don't have to pay Thailand, they will be considered
capital gains taxes in the US, which aren't counted for personal
income purposes:

Motley Fool

"Most notably, although personal income includes dividend and interest
income from investments, it does not include capital gains received
upon the sale of investments."

And, if you do have to file a return with Thailand, the taxes you pay
to them will be subtracted from your US tax burden, so your tax
liability would go down appropriately. They should not affect too
greatly your estimated personal tax liability for the year-- just your
total estimated tax liability, as you will have to pay capital gains
taxes on the property, to either the US or Thailand.

Search terms:
us citizen capital gains real estate abroad
thailand capital gains
capital gains vs personal income

If you need any additional help or clarification, let me know and I'll
 be glad to assist you.


Request for Answer Clarification by cetrans-ga on 01 Oct 2006 10:14 PDT
I reside in the U.S., not abroad. The property is in Taiwan.

Clarification of Answer by keystroke-ga on 01 Oct 2006 20:57 PDT
Hello cetrans,

I'm terribly sorry that I misread your question regarding the
property's location. That is completely my fault. I must have been in
the mood for some pad thai. Let me clarify myself then...

Unfortunately, the outcome is not as favourable for selling a property
in Taiwan as it would be in Thailand. Taiwan has the equivalent of a
capital gains tax, and while it does have a double taxation treaty
with the US to prevent double taxation on income, it does not have the
same arrangement as far as real estate goes. You must consult with a
lawyer to see if there is some loophole that you could use, but as far
as I see, you'll have to pay taxes on the property in both Taiwan and

Taiwan does not have a capital gains tax, but they have something
similar called a "land-value increment" tax.
Republic of China - Taiwan
American Journal of Economics and Sociology, The,  Dec, 2000  by Alven H.S. Lam

"The land-value increment tax is levied on realized gains from land
transactions. It is sometimes imprecisely characterized as a "capital
gains" tax. The gains from land sales in Taiwan, however, have special
land policy implications. In Dr. Sun's ideology, it is important that
"the increment of land price should belong to the society rather than
the landlord." He believed that the increase of land-value is
attributable to social development rather than work from the landlord
or investors. The profits from land should be returned to the society
through the land-value increment tax. The land-value increment tax
became a powerful policy tool to regulate the equity of income
distribution and to control land speculation. The seller must pay the
land-value increment tax before the land transaction is completed.

For taxation purposes, the land-value increment is measured by the
difference between the Official Declared Present Values (ODPVs) at the
current and last transfer. The assessment of the ODPV is announced on
July 1 of every year. Since land-value increment tax is a tax on gains
in asset income or value, all the occurring costs and fees are
deductible from the gross income. The formula to calculate the net
increment is:

Land-value increment

= declared present value at the transfer

- original decreed value or the assessed value at the last transfer

x consumer price index adjustment

- land improvement costs + construction benefits fee paid

+ fee paid for land consolidation.

The tax rates are 40 percent, 50 percent, and 60 percent. When the
increment is not in excess of 100 percent, the tax rate is 40 percent.
If the increment is between 100 to 200 percent, the tax rate is 50
percent. If the increment reaches more than 200 percent, the tax rate
becomes 60 percent."

Taiwanese Government-- Land Value Increment Tax

There is a treaty between Taiwan and the United States regarding
income tax; this does not extend to capital gains/land value increment
tax, however, and so after paying the taxes in Taiwan, you will then
have to pay capital gains taxes on the profits of the property in the
United States. (The imformation supporting the fact that all US
citizens must pay taxes on all worldwide earned income, and
specifically foreign real estate, is at the beginning of my original
answer.) You may want to check with a tax professional familiar with
foreign real estate transactions to be sure about what exactly you owe
and what you could try to do to make the capital gain less for
taxation purposes.

Additional Sources:

Wikipedia-- Taiwan

Wikipedia-- Republic of China

Search terms:
taiwan wikipedia
"republic of china" + "capital gains"
"republic of china" + "capital gains" -people's
"republic of china" + "land value increment tax"
taiwan + us tax treaty
taiwan + "land value increment" + "income tax"

Let me know if you need any additional help or clarifications. I
apologize for the earlier mistake.


Request for Answer Clarification by cetrans-ga on 02 Oct 2006 08:08 PDT
Thank you for your corrected answer; I will most likely consult a tax
attorney regarding this issue.
cetrans-ga rated this answer:4 out of 5 stars

Subject: Re: US tax liability for overseas real estate transaction?
From: myoarin-ga on 01 Oct 2006 10:05 PDT
The property is in Taiwan.  Apparently there is not a US treaty with
the Republic of China (not the People's Republic) on the avoidance of
dual taxation.
Subject: Re: US tax liability for overseas real estate transaction?
From: keystroke-ga on 01 Oct 2006 20:58 PDT
Thanks, Myo. I was off my game today!


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