Selling Your American Home

When should you sell your US home?

This question has come up even more often than usual lately, largely because of some changes that the French legislature might make to the tax law and some more minor changes that they have already made. If you are moving to France and have a US home that has increased significantly in value since you bought it, you might well be worried about what the taxes on that gain would be in France. To understand how French capital gains taxes could affect you, there are a few things to know.

Before you move

If you close on the sale of a property – primary home or not-- before the day on which you physically move to France, any gains are not taxable in France. This is because French tax law recognizes partial year residency. Income received during the year before you are a resident is not taxable; income you receive after is. And it doesn’t matter where you are in the calendar year when any of that happens.

When you move

French tax laws currently offer taxpayers a total exemption from capital gains taxes on the sale of a primary home. But French law only recognizes a property as your primary home while you are using it as such. And recent clarification says that it must be your principal residence on the date of sale. If you move to a new property, rent out your place or turn it over to your best friend to live in, it is no longer your primary home. As a result, the capital gains are calculated as it were a second home or investment property. Right? Well, not exactly.

Anyone who has any experience with the French property market knows that things can take a while to sell. So, what if you put your house on the market as you are moving, and it does not sell until after the move?

The same published opinion from the tax authorities that specified the “day of sale rule” goes on to say “Ce principe comporte six assouplissements” or in my very rough translation: ‘This principal has six points of flexibility.’  See the Bulletin Officiel des Finances Publiques-Impôts BOI-RFPI-PVI-10-40-10 here: https://bofip.impots.gouv.fr/bofip/4307-PGP.html/identifiant%3DBOI-RFPI-PVI-10-40-10-20181219#Immeuble_occupe_jusqua_sa_m_26.

The first of these points is for those who put up the home for sale when they move (you will find it as section A.190). According to the guidelines [my translation]:

“It is accepted that, where the property has been occupied by the seller until it was put up for sale, the exemption remains valid if the transfer takes place within a normal timeframe and provided that, during this period, the property has not been rented out or occupied free of charge by members of the owner's family or third parties.”

There is some more language about whether you can define a “normal timeframe” – you can’t. But the guidelines suggest you consider up to a year to be reasonable without having to document why your home did not sell.

The other five assouplissements could apply in some cases. And there are several other, separate, exemptions for capital gains from the sale of a property in France. So if your circumstances are such that the move is precipitated by a divorce or separation, a disability, a job transfer, the loss of a job, etc… it might be worth checking on those.

After you move

Once you have moved to France without putting your house up for sale, you are subject to capital gains taxes in France on the proceeds when it sells. In general, you will calculate your basis (there are default additions to basis for renovation work and purchase and sale costs). You will then pay taxes and social charges at a flat rate on the proceeds. I have covered some of that in this article: https://www.sanderlingexpat.com/blog/french-taxes-on-the-sale-of-us-homes.

You do still have choices to make, however. Aside from the exemptions mentioned above, there are others. For instance, if you have been renting for at least four years since you last lived in the property you own, you probably fall back into the category of a “new owner” in France. If you then sell a property and use the proceeds to purchas something in France, you can get a tax exemption for the proceeds reinvested.

But the far more important tax break is the abatement for length of ownership. French tax law provides a tax abatement that begins at 6 years of ownership and grows slightly every year. Regular income taxes disappear at 22 years; social charges at 30 years. And if the property is in the US, you also get a credit for any US capital gains tax you paid on the sale. So, you will hit a point where your US credit knocks out your French tax bill completely.

The changes

Remember at the beginning when I said that there might be changes to this law? The current budget debate in the National Assembly and Senate includes a provision that would require an owner to have lived in a property for at least five years to benefit from the principal home capital gains tax exclusion. We do not yet know the outcome of that proposal, but we will update you in future posts.