How to report foreign property sales to IRS

[Natalia Zhou]

I have a foreign investment house and I sold it recently, how do I report the sale to IRS now? I don’t want to wait till Apr 2021 and pay a whole bunch of penalty for not withholding enough tax due to this capital gain. Thanks.

[Eamonn McElroy]

@Natalia Zhou

You wouldn't report anything at the moment.  If you will owe US income tax on the gain, you can make a quarterly estimated payment.  2020 Q1 is due July 15th.

A lot to examine and unpack here...  For example, what does the tax treaty between the US and the relevant country dictate as far as treatment?  If you indeed have tax exposure to both countries, you'll most likely be able to offset (or eliminate) your related US income tax with foreign tax credits.

Then...there's the question of what other foreign filing obligations have have as it relates to the US...possible FBAR and/or 8938 if the money moved through a foreign account, or even was held in a foreign escrow account.  If the property was a rental it should have been previously reported while you were a US person -- i.e. citizen or resident alien.  And if was a rental, there's a possibility you should have been filing an 8858 as well.

If you have the economies of scale to absorb professional fees, it may be best to go that route.  The compliance obligations in this area are complex.