Question: Katherine is a U.S. citizen living in El Salvador. She purchased a personal residence in that country over 12 years ago and has lived there as her primary residence ever since. Katherine sold her home in May of 2024. The home was originally purchased for $220,000; she made $50,000 in improvements and sold it for $300,000. The sale results in a small gain.
Katherine mentions that she has not yet received Form 1099-S, Proceeds from Real Estate Transactions, but she will receive one. Would Katherine be able to take advantage of the §121 exclusion and how would that be reported on her tax return since the home was in a foreign country?
Answer: Yes, if all the §121 requirements are met, the exclusion can be used on a foreign residence. Section 121 and Reg. §1.121-1 do not explicitly require the residence to be in the United States.
Therefore, as long as Katherine satisfies the ownership and use tests required under §121, she is eligible to exclude the gain from the sale of her principal residence, regardless of its location in a foreign country.
Katherine will report the sale of her foreign principal residence and the exclusion on Form 8949, Sale and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital gains and Losses, just as if it was sold in the U.S.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.