Capital Gains Tax for US Expats: Sold Stocks, Real Estate, or Crypto Abroad? The IRS Still Taxes It.

Yes — without exception. US citizens and green card holders are taxed on worldwide income, including capital gains, regardless of where they live or where the asset was sold. The sale of stocks, real estate, cryptocurrency, or any other capital asset abroad is a taxable event reportable to the IRS on Form 8949 and Schedule D of your Form 1040. Living in a foreign country that has no capital gains tax does not change your US obligation.

No. The Foreign Earned Income Exclusion (FEIE, Form 2555) applies only to earned income — wages, salaries, and self-employment income from services physically performed outside the US. Capital gains are investment income, not earned income, and are entirely outside the FEIE's scope. Even if your FEIE claim reduces your federal income tax on wages to zero, every dollar of capital gains remains fully taxable at standard US capital gains rates. This is one of the most common misconceptions Mark encounters with new expat clients.

Short-term capital gains — from assets held less than 12 months — are taxed as ordinary income at your marginal rate, up to 37% in 2025. Long-term capital gains — from assets held 12 months or more — are taxed at preferential rates: 0% for lower income filers (up to $48,350 taxable income for single filers), 15% for most middle-income filers, and 20% for high earners. An additional 3.8% Net Investment Income Tax (NIIT) applies for taxpayers with modified AGI above $200,000 (single) or $250,000 (married filing jointly). Holding an asset for at least 12 months is the single most impactful tax planning decision available on capital gains.

Yes. The IRS classifies cryptocurrency as property under IRS Notice 2014-21 — not as currency. Every disposal of crypto is a taxable event: selling for cash, trading one crypto for another, using crypto to pay for goods or services, and in many cases receiving staking or mining rewards. If you traded Bitcoin for Ethereum, you triggered a taxable event on the Bitcoin gain at the fair market value of the Bitcoin on the date of the trade. Every transaction must be reported on Form 8949 with the USD cost basis and USD fair market value at time of disposal. Living abroad does not create any exemption from these rules, and the IRS now cross-references data from major exchanges and foreign FATCA disclosures.

Potentially, yes. The Section 121 primary residence exclusion — up to $250,000 of gain for single filers, or $500,000 for married filing jointly — can apply to foreign real estate if you owned and used the property as your primary residence for at least 2 of the 5 years before the sale. However, there is an important complication for foreign property: the currency gain component is calculated separately and does not qualify for Section 121. If you bought a home for €300,000 when the euro was at 1.10 USD/EUR and sold it for €300,000 when the euro was at 1.25 USD/EUR, you have a taxable currency gain even though the property value didn't change. Mark calculates this in full for every foreign property sale.

A Passive Foreign Investment Company (PFIC) is any foreign corporation that earns primarily passive income or holds primarily passive assets. In practice, this includes most foreign mutual funds, unit trusts, ETFs listed on foreign exchanges, and some foreign pension funds. PFICs are subject to an extremely punitive tax regime: unless you make a timely election (QEF — Qualified Electing Fund, or mark-to-market), gains and "excess distributions" are taxed at the highest ordinary income rate (currently 37%) plus a special interest charge on deferred gains. Form 8621 must be filed for each PFIC held — annually, in some cases. Many expats unknowingly hold PFICs through local investment accounts or employer-provided savings plans. Mark identifies PFIC exposure for every relevant client and advises on elections to avoid the punitive default rules.

Yes — if you paid capital gains tax to a foreign government on the same asset, you can claim a Foreign Tax Credit (Form 1116) to offset your US capital gains tax on that income. The credit is dollar-for-dollar against your US liability, limited to the US tax on the same gain. This prevents true double taxation in countries that do have capital gains taxes (UK, France, Germany, Australia, Japan). If you live in a country with no capital gains tax — such as the UAE, Singapore, or Thailand — there is no foreign tax paid and therefore no credit to offset your US bill. Unused credits carry forward 10 years.

The Net Investment Income Tax (NIIT) is an additional 3.8% surtax on net investment income — including capital gains, dividends, interest, and rents — for taxpayers with modified adjusted gross income (MAGI) above $200,000 (single) or $250,000 (married filing jointly). It applies to US expats. The important nuance for FEIE claimants: excluded income still counts toward MAGI for NIIT purposes. If you exclude $130,000 in wages via FEIE and have $100,000 in capital gains, your MAGI may still exceed the NIIT threshold, triggering the 3.8% surtax on your capital gains even though your income tax was reduced. Mark calculates NIIT for every client with investment income.

Generally, yes — though most small personal transactions are exempt. Under IRC Section 988, gains and losses from foreign currency transactions are typically treated as ordinary income or loss, not capital gains. If you hold a foreign bank account, receive income in a foreign currency, or make large purchases in a foreign currency and later convert at a different rate, you may have a reportable currency gain. Personal transactions under $200 in currency gain are exempt. For expats receiving salary in foreign currencies or holding foreign investment accounts, currency gain can be a meaningful additional income item. Mark reviews currency exposure for every client with foreign currency assets.

Act now, before the IRS acts first. File amended returns (Form 1040-X) for the affected years and pay the underlying tax plus interest. The IRS accuracy-related penalty for underreporting is 20% of the underpayment — but if you proactively amend before receiving an IRS notice, you may qualify for First-Time Abatement or Reasonable Cause penalty abatement. If you have multiple years of unfiled returns (not just unreported gains), the IRS Streamlined Foreign Offshore Procedure may let you catch up with penalties waived. Every month you wait, interest accrues on the unpaid tax. Contact Mark as soon as possible — the options available to you narrow considerably once the IRS contacts you first.

The tax treatment depends on the option type. RSUs (Restricted Stock Units) are taxed as ordinary income at the fair market value on the vesting date — this is employment income, potentially eligible for FEIE if the vesting relates to services performed abroad. The gain from the vesting date to the eventual sale date is a capital gain, reported on Form 8949. NQSOs (Non-Qualified Stock Options) trigger ordinary income on the spread at exercise, with capital gains on any subsequent appreciation. ISOs (Incentive Stock Options) may trigger AMT at exercise, with long-term capital gains at sale if holding periods are met. The interaction of equity compensation with FEIE and the capital gains rules is complex — Mark handles equity compensation tax analysis as part of his practice for expat employees at US and multinational companies.