US Taxes on selling CR property?

First keep good books. The money coming back in is just like any other investment. If you lose money you have a loss, if you gain you have a profit which MAY be taxable. If you spend more on improvements than you get in your sales price then you may have a loss. The amount that went OUT can come back in the same way. Just be sure you can account for it.

As a US citizen you are libel for taxes on earnings anywhere in the world forever, AMEN.

Unless you renounce your US citizenship and permanently leave the country this is the rule AND if you owe back taxes they would still be due.

There is one advantage to living outside the us (full time) and that is a tax exemption on income up to $80,000. However, too may trips home or too much time in the US and you can lose that exemption.

I’m certain you are correct, Scott. The foreign income tax exclusion is an exclusion from taxation on foreign *earnings*. That does not include “unearned” income such as rents, capital gains, etc.

That said, were one to sell something here in Costa Rica and wish to “transport” the money to the United States, it could be done by an international wire transfer from bank to bank. No mystery there. You would, however, probably have to report that transfer to IRS.

Scott,

The exclusion is 85,700 each. I have cut and pasted part of a post from late June on another thread that clarifies the exclusion. Note that Foreign earned does not mean the income has to be earned in a foreign country just that it is earned while your “tax home” is outside the U.S.

Here are the rules and a link to the law…

In order to qualify for the exclusion, you must pass three tests:

Your tax home (place where you work) must be in a foreign country
You must have foreign earned income (does not include lodging, meals, fringes)
You must pass either the “bona fide” residence or “physical presence” test in a foreign country.
The “bona fide” residence test is passed if you have a home in a foreign country for at least one uninterrupted tax year. Generally, the tax law anticipates that you have moved to this country with the intention of staying there for a long while. Most people claim the physical presence test instead.

The “physical presence” test is passed if, during any 12-month period, you were present in a foreign country for any 330 days. They need not be consecutive, nor does the 12 month period have to be concomitant with a calendar or other tax year. For instance, if you were present from July 1 to June 30 the next year, and you only left the country for a couple of weeks at Christmas, you pass the test.

There is a limit on the amount of foreign earned income that can be excluded. The limit in 2007 is $85,700 (inflation-adjusted thereafter). If the bona fide residence or physical presence tests are only passed for part of a year, it must be pro-rated. For example, our taxpayer above who qualified beginning on July 1 could take an exclusion for that year of $42,850 (since 6 of the 12 months were qualified exclusion months). The pro-ration is calculated down to the day.

You must file a timely return in order to claim the exclusion, and claiming the exclusion means that any tax advantages to income (like IRA contributions) are disallowed to the extent that earned income is excluded. Taking the exclusion also disqualifies you from the earned income credit.

In addition to the foreign earned income exclusion, taxpayers can also claim an exclusion for a foreign housing allowance. Congress has restricted the amount that can be claimed. The limit on the foreign housing exclusion is the following formula:

(30% of your own foreign earned income exclusion – 16% of the greatest possible exclusion)

If you are self-employed, you can deduct any foreign housing costs not already excluded by the earned income exclusion or the housing exclusion.

Amounts your employer gives you for lodging are not taxable, so they also cannot be excluded or deducted from income.

Any exclusion or deduction of housing naturally means that you cannot claim mortgage interest deductions or other tax advantages on that housing. No double benefit is allowed.

One of the biggest changes Congress has made in these rules is the so-called “inclusion amount.” Under the prior law, the income and housing exclusions would be taken off of gross income, and whatever was left would have taxes owed.

Now, the amount of income that is left must be taxed as if the excluded income was never excluded. That means that fairly moderate-income taxpayers will face very high marginal tax rates on fairly low amounts of income.

The details can be found here at: http://www.irs.gov/publications/p54/ch04.html

I hope this helps clarify this issue. It is a WONDERFUL thing…

Sincerely,

Jerry

Just one clarification, please, Jerry. The income which may be excluded from U.S. taxation is earned income — from work — right? If I understand correctly, the exclusion does not apply to rents, capital gains, etc. Or am I wrong?

David,

You are correct that the income must be earned income. Having said that, if you owned a corporation (US, CR, or otherwise), for which you worked, and the corporation had income from rents or gains from the sale of assets, and you paid yourself a resonable salary from the corporation for the services you perform, that would be earned income. The Corporation would be able to deduct the salary it paid you and you would have a foreign earned income exclusion on your income. So, the net effect could be that the rents, gains, etc. didn’t have taxes. Structure and documentation is important. If you didn’t do so, go to the link that I provided for more detailed information and some easily understood real life examples. http://www.irs.gov/publications/p54/ch04.html

Jerry