US Capital Gains Tax for American Expats – A Guide

If you’re an American living abroad, whether you’re building a business, working remotely , or just enjoying the expat lifestyle, life overseas can be deeply rewarding.

Wherever you are and whatever you’re doing, you’ll still have to file US taxes though.

No matter where you live, as a US citizen, the IRS still requires you to report and pay tax on your worldwide income, including global capital gains. Whether you’re selling stocks, cashing out crypto, selling foreign real estate, or exiting a business, US capital gains tax follows you wherever you go.

In this article, we outline how capital gains taxes work for American expats – what’s taxed, what’s excluded, what forms to file, and how to reduce what you owe.

• What is a capital gain?
• Reporting capital gains as an expat
• What you can exclude or offset
• Strategies to lower capital gains tax while abroad
• Local capital gains tax in other countries
• Capital gains income tax FAQs for expats
• US capital gains tax for Americans living abroad

What is a capital gain?

Capital gains happen when you sell an asset for more than you paid for it. Common examples include stocks, bonds, mutual funds, real estate, cryptocurrency, and business interests.

The IRS separates gains into two categories:

• Short-term capital gains apply to assets held for one year or less. These are taxed as regular income at ordinary income tax rates (up to 37%).
  
• Long-term capital gains apply to assets held for more than one year. These benefit from lower tax rates: 0%, 15%, or 20%, depending on your income.

For 2025, the long-term capital gains brackets are:

• 0%: taxable income up to $48,350 (single) or $96,700 (married filing jointly)
  
• 15%: income from $48,350 to $533,400 (single) or from $96,700 to $600,050 (married filing jointly)
  
• 20%: income above those thresholds

Holding an asset for at least one year often makes a major difference in your final tax bill.

Note also that you may be able to deduct expenses relating to the assets you sell from the gain when calculating the tax liability. These include transaction costs during the sale and purchase (such as professional fees), the cost of improvements, and the cost of depreciation. 

You can also offset losses you’ve made on the sale of assets against the gains made on others if the assets are sold in the same year. This is known as loss harvesting.

Reporting capital gains as an expat

Even if your assets are abroad, or you sold them through a foreign broker, you’ll still need to report your capital gains on your US tax return.

Here’s what typically applies:

• Form 1040: your main tax return
  
• Schedule D: summarizes your total capital gains and losses
  
• Form 8949: lists each individual sale or trade

Depending on what you’ve sold, you might also need:

• Form 4797: for business property
  
• Form 8824: for like-kind exchanges
  
• Form 2439: if you received undistributed capital gains from mutual funds or REITs

If you hold foreign financial accounts or assets, you may also need:

• FBAR (FinCEN Form 114): required if your foreign account balances exceeded $10,000 at any time during the year
  
• Form 8938 (FATCA reporting): required if your foreign assets exceeded $200,000 (single) or $400,000 (married) at year-end

What you can exclude or offset

American expats have access to a few provisions that can reduce (or sometimes eliminate) their capital gains tax legally.

Section 121 home sale exclusion

If you sold your primary residence abroad (or in the US), you may be able to exclude up to $250,000 of gain if single, or $500,000 if married filing jointly. To qualify, you must have owned and lived in the home for at least two of the past five years before the sale. 

if you do not meet the two years test for any  reason (such as you had to relocate for employment, or for health reasons), you may qualify for a partial exclusion. It’s also worth noting that you cannot claim this exclusion if you claimed it from the sale of another home during the two-year period prior to the sale.

The Foreign Tax Credit

If you paid capital gains tax to a foreign government, the IRS may allow you to claim the Foreign Tax Credit, which applies a credit for the same value as foreign tax you’ve paid against your US tax bill. If your foreign tax rate is higher than the US rate, you can usually carry unused credits forward for up to 10 years.

Foreign Earned Income Exclusion (FEIE)

The FEIE allows you to exclude up to $126,500 of foreign earned income (like salary or freelance income) for 2024 (or $130,000 for 2025). However, capital gains aren’t considered earned income, so you can’t exclude them using the FEIE.

Still, using FEIE to reduce your total taxable income can bump you into a lower short-term capital gains bracket. This creates indirect savings, especially if you also claim the standard deduction and harvest gains strategically.

Strategies to lower capital gains tax while abroad

Planning ahead can reduce your tax liability — or eliminate it altogether — especially if you sell assets while living abroad.

• Hold investments for over one year
  Doing this allows you to qualify for lower long-term capital gains rates, which can save you 10% – 20% or more.
  
• Time asset sales for low-income years
  Selling during a year with little or no income may qualify you for the 0% capital gains rate on long-term gains.
  
• Offset gains with capital losses
  Selling losing investments in the same year lets you cancel out gains. You’re only taxed on your net positive result. Note though that you can only deduct up to $3,000 of capital losses against ordinary income each tax year, with any remaining losses carried forward to future years.
• Rebalance inside retirement accounts
  Trades inside IRAs or 401(k)s aren’t taxed, so you can harvest gains and reinvest without triggering a tax bill.
  
• Use the foreign tax credit strategically
  If you pay income tax in a high-tax country, you can often wipe out your US liability with the credit.
  
• Claim the standard deduction
  Even when living abroad, expats get the standard deduction ($14,600 single in 2024), which lowers your taxable income. This may keep you in the 0% long-term capital gains bracket and lower your short-term capital gains bracket.

Local capital gains tax in other countries

The country where you live may also tax your capital gains. How they calculate gain, what they allow for deductions, and how they treat foreign vs. local assets, varies by country.

As a result, foreign tax laws can affect how much you pay and what value of Foreign Tax Credits you can claim. 

Capital gains income tax FAQs for expats

Do I have to pay capital gains income tax to both the US and my country of residence?

You might. But if you pay tax abroad, you can often eliminate US tax with the foreign tax credit.

Does the Foreign Earned Income Exclusion reduce my capital gains tax?

Not directly. Capital gains aren’t eligible for FEIE. But if FEIE lowers your total taxable income, your capital gains may fall into a lower bracket.

Can I avoid US capital gains tax by living in a tax haven?

No. The US taxes citizens on worldwide income, regardless of where you live. Local tax rates may help reduce your global burden, but US tax still applies.

What happens if I sell crypto while living overseas?

Crypto is treated like property. Gains are subject to short-term or long-term capital gains tax, depending on how long you held it.

What if I don’t report a gain I made abroad?

Failure to report foreign gains can lead to penalties and interest. The IRS has access to more foreign data than ever, especially under FATCA.

US capital gains tax for Americans living abroad

Capital gains taxation is one of those areas where many expats get caught off guard, especially when selling assets in another currency, country, or tax system. As an American abroad, you’re still in the IRS’s jurisdiction, even if your investments feel far from home.

The good news is that with proper planning, you can often reduce or eliminate US capital gains tax using tools like long-term holding, the Foreign Tax Credit, loss harvesting, and timing sales carefully.

Track your basis, file the right forms, and seek professional advice, especially when you’re selling a business or other high value assets. The right advice and planning early could save you significant amounts of money later.