Jump to content

taxes to irs upon selling a property?

Recommended Posts

I was surprised that a search for taxes did not lead me to anything about this so I'll ask it. If anyone can point me to a thread that covers this, great. Otherwise, any feedback I can get here would be great.


Before I go investing in property I'd like to have some idea of how this works with the IRS, and I'm really ignorant of tax stuff re selling property.


I understand that when you sell a property in Costa Rica you pay some fees and taxes to Costa Rica.


But what about the IRS? What kind of tax burden does the IRS it you with? Is there a certain amount you can get as income from a property sale without owing taxes on it? Or do you pay IRS taxes no matter how much the sale is? (i.e.; I thought I heard something about the first $50k or so of income from a sale was not taxable; but I may have been dreaming! ;-D )


Is the IRS tax the same on raw land as it would be on a home? (in other words is income income or is income from a house sale different from income from a land sale, in the IRS's view?)


I don't expect legal advice or tax advice here; I'm just looking for a general ball park idea and perhaps a link or two to more info on this, or anecdotal stuff like "I sold some land for $xx,xxx and paid $xxxx in taxes"... Just how BAD is the IRS hit on real estate profit from CR?


So let's say I buy a property and sell it 10 years later for 5 times what it's worth. (I'm not saying that's practical to do, I'm just using this as an easy mathematical concept to deal with.)


So let's say I paid $50k for the property and sell it for $250k. About how much of that $200k profit would the IRS want to take from me?


I'm trying to get a feel for what my obligation is to the IRS would be for a sale of this type.


And how much paperwork would I have to submit to the IRS? Would they need to know who sold it to me and when? How much I paid? etc.


Or would they only need to know how much money I put in the bank from the sale, the title info and buyer?


And I guess if you sell a property in CR you HAVE to have a bank account in CR, right? You can't conduct the whole thing using US banks, or US / Canada? What if the buyer was from, say, Canada or Mexico, for example? Would it matter where the buyer was from, from the IRS's standpoint? Or do they only care about the income the U.S. citizen made from it?


Mostly I just want to know how much of a tax burden it is to sell a property for a profit in CR? And how complicated the IRS reporting is.

Edited by elosodelcerro
Link to comment
Share on other sites

El oso, I wouldn't count on any appreciation if you buy something. Don't consider anything you buy as an investment. Look at as: if I buy something, can I afford to wait a year or two before it sells? Can I afford to lose money on it? And, as you're read elsewhere, are there any issues with the property? Lots of developments sell lots that will have utilities and infrastructure in "within weeks," and years later, buyers are still waiting.....


Sorry to be discouraging, but this is the reality of buying property in CR.


Good luck!'





ps: and we have a wonderful house in CR, and my feeling when we went into the transaction was: Can we afford to lose money on this? If we couldn't, we wouldn't have bought it. Some on the forums have done very well when they've sold their property, others, not so much.

Edited by salish sea
Link to comment
Share on other sites

jjlen53, thanks for the reply. I'll check that link out.


Gayle, thanks for the warning but I've done my due diligence in terms of researching buying real estate in Costa Rica, what I am lacking is research on what happens when you sell it, IF you make money on it; thus, this thread. I won't buy anything I don't think is going to make money and I won't invest what I can't afford to invest.

Link to comment
Share on other sites

  • 2 weeks later...

As far as the IRS is concerned, a capital gain is taxed the same way whether the property is located in Guanacaste or Green Bay. You may get a credit for the taxes that you have already paid to Costs Rica on the transaction, though.

I should add that where the taxpayer is residing at the time of the sale is also disregarded. You can get an exclusion on earned income if you live overseas but there is no such provision for investment income.

Edited by TyLand
Link to comment
Share on other sites

  • 2 weeks later...

If you read AM COSTA RICA or The Tico Times, both of these online newspapers regularly have several ads placed by tax accountants who specialize in preparing expat gringos' tax returns.


I'm sure that contacting one of them would be a practical way to get the best info for filing so as to minimize what you must pay out.


Otherwise, one of our Forums members may have satisfactorily used an accountant who helped them to this end.


Best of Luck!

Paul M.


Link to comment
Share on other sites

As I understand it, a U.S. cpa or tax and/or investment expert is probably more appropriate than a Costa Rica cpa or whatever they call themselves in Costa Rica because it is the IRS which is the major player in the scenario. There are fees you will pay to Costa Rica but it is the IRS which is going to extract the most from any property sale. Am I right on this?

Edited by elosodelcerro
Link to comment
Share on other sites

  • 1 month later...

Hi All,


I can't speak to selling foreign real estate, but I can tell you that as a USA citizen, if you operate an S.A. (sociedad anonima) in Costa Rica, you may be liable to report it on Form 5471, or else face a $10,000 per year fine. There is also very little chance of getting a break on the fine unless you have an extreme circumstance.


Form 5471 is for anyone who owns or holds shares in a foreign corporation. I lived in a $500/month apartment for 6 years and used a local S.A. to operate as a sole proprietor. Taxes were paid to Costa Rica Minesterio de Hacienda and to the USA IRS.


Unfortunately, while I reported foreign income, I did NOT report owning a foreign corporation. I thought owning a foreign corporation meant holding stock in some enormous business, trading financial instruments, or some company with a multi-national presence.


Apparently a S.A. used to earn a middle-class income is supposed to be reported or else you get fine $10,000 a year for any delinquent forms.


If you're using YOUR own S.A. for your real estate transaction (meaning a Costa Rica business you own yourself or operate independently), and the purchase is significant, you should probably consult a USA Tax attorney about Form 5471.




1. FBAR forms - Foreign Bank Accounts. If you have a signature on file with a bank in Costa Rica for personal or business banking, and the combined balances of your accounts at ANY point during the calendar year exeeds $10,000 all bank accounts must be reported. The $10,000 combined balance includes accounts in other countries not including the USA. For example, if you have accounts in Cost Rica, Europe, Hong Kong, and Panama, all must be reported if the total amount "offshore" is $10,000 or greater.


Your real estate transaction would apply.


2. FATCA assets form - The USA has made an agreement with Costa Rica regarding USA citizens with substantial offshore assets. If those assets exceed $50,000 (not sure exactly on the figure, check the IRS.gov site) you must also fill out a FATCA form disclosing those numbers.


So when you sell the house in 3 years for $150,000 USD and that money goes to your local Costa Rica bank account, you're on the hook to report on a third form.


Talk to USA offshore tax lawyer, even if they charge a high fee for a brief consultation. My delinquent FBARs and 5471s could wipe me out completely. $300-$500 for a hour of a lawyer's time in the USA is money well spent.


Do NOT use a local Costa Rica lawyer for anything but local Costa Rica business law and local taxes.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Create New...

Important Information

By using this site, you agree to our Terms of Use.