IRS Tax Form 8949 for American Expats

IRS Tax Form 8949 for American Expats

All Americans have to fulfill the same annual federal US filing requirements, including those living abroad. This includes reporting certain capital gains.

A capital gain is the increase of the value of an asset that you realize when that asset is sold. Capital gains (and losses) are reported on Form 1040 Schedule D, however the calculations to arrive at the capital gain or loss are reported on IRS Form 8949.

Who has to file IRS Form 8949?

Any US person who has realized a capital gain or loss from the sale of an asset during the tax year has to file Form 8949.

The term US person normally refers to an individual, however corporations and other legal entities owned by Americans can also realize a capital gain if they sell assets.

Married couples who file jointly and sell individually owned assets should report the totals jointly on Form 1040.

What capital gains are reportable?

Assets that can realize a capital gain include real estate, investments, business ownership, cryptocurrencies such as Bitcoin, material assets such as fine art, precious metals or jewelery, or any other assets sold that were bought as an investment or have appreciated in value.

Form 8949 classifies capital gains and losses as either short term or long term. A short term transaction is when an asset is bought and then sold again within a year, whereas a long term transaction refers to when ownership lasts longer than a year.

Short term capital gains are taxed as ordinary income, which is normally a higher rate, so it can make sense to hold on to investment for longer than a year if it has appreciated in value.

Is there a personal capital gains exemption allowance?

“Use Form 8949 to report sales and exchanges of capital assets. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated in aggregate.” – the IRS

There’s a personal capital gains allowance, which means long term gains of up to a certain amount are taxed at the 0% tax rate if your overall income falls below a certain threshold. The allowance for single filers was $40,000 for tax year 2020, and is $40,400 for tax year 2021.

The next capital gains tax bracket of 15% applies for single filers with total income between $40,000 and $441,500. If your overall income exceeds the higher threshold, your capital gains are taxed at 20%.

A personal exclusion is also available if you sell a property that you have lived in as your primary residence for at least two of the five years prior to the sale. Under this rule, individuals can exclude $250,000 of capital gain on the sale, and married couples filing jointly can exclude $500,000. Note that this exemption applies to residential real estate globally.

How to file Form 8949?

A capital gain (or loss) of an asset is calculated by deducting the net purchase price (i.e. the purchase price minus related expenses) from the net sale price (being the sale price minus related expenses).

On Form 8949, for each capital asset disposed of in the year you must enter the asset type, the purchase and disposal dates, and the net purchase and sale values. If you were given a form 1099-B or 1099-S by a broker, the net sale value should be shown. 

Each transaction should be listed separately, and there are different sections for short term and long term gains.

The totals should then be entered in Form 1040 Schedule D.

Can you catch up if you’re behind with your US filing?

If you’ve only recently become aware that you have to file US taxes from abroad, there’s a way to catch up and get compliant without incurring penalties, and, for most expats, paying back taxes. This is by filing under a special IRS amnesty program called the Streamlined Procedure. Seek advice from a US expat tax specialist to find out more.

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