If a US citizen working abroad owns a home in Germany and then sells it, are the proceeds taxable to them in the US? Are their other tax ramifications?

ANSWER

The BIDaWIZ Team's Answer:

There are two key concepts to understand. 1) Generally US Citizens are taxed on their worldwide income and 2) the general purpose of tax treaties is to mitigate double taxation for the taxpayer. If you read Article 23 of the US - Germany tax treaty, it states, "1. Tax shall be determined in the case of a resident of the United States or a citizen thereof as follows: In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income a) the income tax paid to the Federal Republic of Germany by or on behalf of such citizen or resident; and." Thus, your client may claim taxes paid to Germany via Form 1116. In addition, if your client meets the requirements to be eligible for the capital gains exclusion of up to $250,000/$500,000 if joint filer, then they won't be liable for US taxes on the sale. If the gain is in excess of that amount it will need to be reported on Schedule D of their 1040.