I am a resident in the USA and pay taxes in the USA. I have a house in Brazil that I am selling, with profit. AIUI, the profit is tax-free because I have lived more than 2 of the past 5 years in that house, and the profit is less than $500k (joint return).

However, I will receive the payment later, possibly years later. At the point when I will receive the payment, the profit likely wouldn't be tax-free anymore.

If I simply include the sale of the house in my taxes, say in 2016, my actual assets wouldn't reflect that sale, and later, say in 2018, I all of a sudden would receive a large sum from Brazil, without a corresponding entry in my tax report. An additional complication is that I need to file a "Report of Foreign Bank and Financial Accounts" (FBAR), and it also wouldn't reflect a payment received in 2016, but later, in 2018.

Am I right in assuming that the sale is tax-free in 2016, even though the house is in Brazil and I won't receive the payment anytime soon? How would I register the sale, and years later the corresponding receipt of the payment?

  • 1
    If you mess this up, you will potentially be on the hook for a huge back tax plus quite possibly a fine. Talk to a lawyer who specializes in tax legislation and international transactions. Without knowing what the net return on that house sale is, it stands to reason that the cost of a legal consulation will be small compared to the potential downside if you get it wrong. – user Mar 21 '16 at 16:19
  • It seems this question has been downvoted. This is my first post in this section, and I can't see anything wrong with it. If someone could please explain the downvote (ideally the downvoter, but also anybody who can think of why)? – Gerhard Fiedler Mar 24 '16 at 13:34

I talked to a CPA with experience in international matters, and he told me that the fact that the house is in Brazil has no bearing on my question.

According to him, the way to handle this situation is to receive a promissory note (specifically a demand note) as payment. The actual payment is then treated as an exchange of the payment for the demand note.

However, there's one twist: this demand note amounts to an interest-free loan. But in terms of income tax, this is treated as a loan with an interest below market rate, and even though I wouldn't charge any interest on the loan, I still have to declare an interest of 0.7% as taxable income.

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  • 3
    Thank you for posting the answer here. The question was great, in my opinion. For what it's worth, down votes are anonymous even to moderators, and most often with no comment. – JTP - Apologise to Monica Mar 24 '16 at 15:15

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