Selling your US home from abroad: capital gains

If you lived in the house for two of the five years before you sell, most or all of the gain can be tax-free. Move abroad, and that window starts closing the day you hand over the keys.

The short version

The exclusion: up to USD 250,000 of gain tax-free, or USD 500,000 on a joint return, if you meet the ownership and use tests [1].
The three-year window: you need two years of living there within the five years before the sale. Leave after exactly two years and you have about three years to close.
Renting it out in between is fine, but the depreciation you were allowed (claimed or not) is taxed at up to 25% when you sell [2][3].
The state may tax the gain if the house sits in a state with an income tax [5].
Your host country may tax it too. Its main-home relief may not cover a house in another country you no longer live in.

How the Section 121 exclusion works

Section 121 is the rule that lets most Americans sell a home without a tax bill. You can exclude up to USD 250,000 of gain, or up to USD 500,000 on a joint return, if you pass two tests during the five years ending on the day you sell [1]:

Ownership test: you owned the home for at least 24 months.
Use test: you lived in it as your main home for at least 24 months. On a joint return, each spouse must meet the use test for the full USD 500,000 [1].

The two periods don't have to overlap, and they don't have to be continuous [1][2]. You also can't have used the exclusion on another home sale in the two years before this one [1].

Nothing in the rule says you have to live in the US when you sell. It only cares about where you lived during that five-year window.

The three-year window, in plain terms

Because the use test looks back five years from the sale date, every month you're abroad pushes your old years in the house further back. Once you've been gone more than three years, you can no longer squeeze two years of use into the window.

Here's an example:

You live in the house from 2018 until you move to Lisbon on August 1, 2024.
Sell before August 1, 2027, and the five-year look-back still holds 24 months of you living there.
Close later than that, and the exclusion is gone for this house, unless you move back in and rebuild two years of use.

A few things change the math:

You lived there less than two years. You won't have a three-year cushion. Some people qualify for a partial exclusion, for example after a job move where the new job is at least 50 miles (80 km) farther from the home than the old one [2]. A move abroad for work often qualifies, but the amount is prorated.
Foreign Service, military and intelligence staff can elect to suspend the five-year period for up to 10 years while on qualifying extended duty [1]. That's a big deal for diplomats posted overseas.
A spouse who never lived there. On a joint return, the spouse who fails the use test limits you to USD 250,000 [1].

Put the deadline in your calendar the week you move. Escrow, inspections and a tenant's lease can easily eat six months, so plan to list well before the last summer.

Renting it out first: depreciation and nonqualified use

Plenty of expats rent the house for a couple of years while they decide whether they're staying abroad. That works with Section 121, with two catches.

Depreciation comes back

While the home is a rental, you take depreciation on Schedule E. When you sell, you can't exclude the part of your gain equal to the depreciation "allowed or allowable" after May 6, 1997 [3]. That slice, called unrecaptured Section 1250 gain, is taxed at a maximum 25% rate [4].

"Allowable" is the key word. If you never claimed depreciation, the IRS still treats it as if you had. Our guide to rental income from a US property explains how to claim it properly.

Nonqualified use mostly doesn't bite expats

Since 2009, gain tied to periods when the house wasn't your main home can't be excluded [2]. But there's an exception that fits the typical expat: time after the last date you used the property as your main home doesn't count as nonqualified use [2]. So renting it out after you move abroad, within the window, doesn't shrink the exclusion. Renting it out before you ever lived in it does.

A worked example

Item	Amount (USD)
Purchase price, 2015	300,000
Depreciation taken while rented, 2024 to 2026	25,000
Adjusted basis	275,000
Sale price, 2027, net of selling costs	650,000
Total gain	375,000
Taxed as unrecaptured 1250 gain (max 25%)	25,000
Remaining gain	350,000
Excluded, single filer	250,000 (USD 100,000 taxable)
Excluded, joint filers who both qualify	350,000 (nothing taxable)

The numbers are illustrative, not a forecast of anyone's market. A US expat tax preparer can run your actual figures, including improvements you added to basis.

What the taxable part costs

Gain beyond the exclusion is a long-term capital gain if you owned the home more than a year [4]. For tax year 2025, the 0% rate applies to taxable income up to USD 48,350 for single filers and USD 96,700 for joint filers; the 20% rate starts above USD 533,400 single and USD 600,050 joint, and 15% covers the middle [4]. The thresholds are adjusted for inflation each year, so check the 2026 figures when you file.

Two more things to watch:

Net investment income tax. An extra 3.8% applies to the gain above the exclusion once your modified adjusted gross income passes USD 200,000 (single) or USD 250,000 (joint), and your foreign earned income exclusion is added back when the IRS measures your income [7].
The foreign earned income exclusion doesn't help. Capital gains are unearned income.

You report the sale on Form 8949 and Schedule D if you get a Form 1099-S or can't exclude all the gain, and Form 4797 for the depreciation part [1][3].

The state and the closing

State tax

If the house is in a state with an income tax, that state generally taxes nonresidents on gain from real estate located there. California, for example, taxes nonresidents on income from California property [5]. Some states also require the closing agent to withhold part of the price from nonresident sellers unless an exemption applies, so ask the title company early. The exclusion usually flows through to the state return, but not in every state.

No FIRPTA for citizens

FIRPTA withholding hits foreign sellers of US real estate. You're a US citizen, so it doesn't apply to you even if your address is in Berlin. The title or escrow company will ask you to sign a certification that you're not a foreign person. Sign it, and make sure they don't withhold just because of your foreign address.

Closing from abroad

You can sign many closing documents through a US embassy or consulate notary, remote online notarization where the state allows it, or a power of attorney signed before you left. Line this up early. Consular notary slots can be booked weeks out.

How your host country sees the sale

Once you're a tax resident somewhere else, that country may tax your worldwide gains, including on a house in Ohio. Here's where expats get surprised:

Main-home relief may not apply. Many countries exempt gain on your main residence, but they usually mean a home you live in when you sell, or one that was your main home while you lived in that country. A US house you left years ago often doesn't qualify.
Currency changes the gain. Your host country may measure the gain in its own currency, using exchange rates from the purchase and sale dates. Your US dollar gain and your local-currency gain can be very different numbers.
Treaties usually let the US tax first. Gains from real property are generally taxable in the country where the property sits. Your residence country then gives a credit for US tax, if any. If the US exclusion means you paid no US tax, there may be nothing to credit [6].

Timing can help. Some people sell before they become tax resident in the new country. Others sell during a gap year between two countries. Get advice in both countries before you list, because once the sale closes, the planning is over.

Selling your US home after moving abroad: the three-year clock and the tax