In 1999, taxpayers overseas may need to consider current and past tax provisions to determine the tax treatment of home sales.

For sales prior to May 7, 1997 (or, at the seller's option, prior to August 6, 1997):
People who sell their homes at a profit may usually postpone payment of taxes on the profit if, within two years of the sale, they buy a new home. This replacement home must cost at least as much as the sale price, minus certain adjustments, of the old home. However, U.S. taxpayers moving overseas to work may be able to extend the replacement period while they are out of the United States.

To qualify, taxpayers must move overseas to work within two years of the time their home was sold. The time frame for civilian U.S. taxpayers to replace their home is suspended while they are out of the United States but, overall, cannot be longer than four years from the date they sold their old home. Military personnel overseas may have up to eight years to purchase and move into a new home in order to defer paying tax on the gain from the sale of their old home. This extension also applies to those military personnel living in base housing at a remote site after being stationed overseas.

For sales after May 6, 1997:
Taxpayers can generally exclude up to $250,000 of gain ($500,000 if married filing a joint return) realized on the sale or exchange of the home. The exclusion is allowed each time a taxpayer sells or exchanges a principal residence, but generally not more than once every two years. The home must have been used as the taxpayer's principal residence for a combined period of at least two years out of the five years prior to the sale.

The exclusion does not apply to any gain resulting from depreciation allowable with respect to rental or business use of the property after May 6, 1997. Nor does the exclusion apply to expatriates who are treated under the law as having lost U.S. citizenship to avoid taxes.

Expatriates who have rented their homes in the United States do not qualify for the deferment of gain on the sale of a personal residence. They may qualify for the nontaxable exchange of like kind properties; however, taxpayers should carefully check to see if the situation meets the qualifications. These rules are described in Publication 544, Sales and Other Dispositions of Assets.

IRS Publication 523, Selling Your Home, contains details on this subject. It is available by writing to the IRS Area Distribution Center, P.O. Box 85627, Richmond, VA 23285-5627, USA.

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