capital gains tax on selling house in USA

I am from USA, living here in Japan, and will be moving to UK soon. I want to sell my flat in USA and take the funds to the UK and buy a flat there.

How do I avoid taking a capital gains tax in the USA??

If you sell property in USA you are taxed on the capital gain--UNLESS you purchase another property in the USA with the proceeds within 1 year...if I purchase outside the USA, with the USA gov't tax me?

Thanks for your input!!

If the property was your primary residence for 2 years, you don't have to pay capital gains tax on it at all. 

I think you're thinking about the tax-free sale of a personal residence.  In the USA, you are taxed on gains in excess of $250,000 ($500,000 if Married Filing Jointly), provided house was lived in AND owned for at least two out of the past five years.  You clearly do not currently live in the property, so the live-in rule has an effect on your sale.

If you lived in it for less than two out of the past five years, you are allowed a prorata reduction of the $250,000 gain exclusion provided the move was for an extenuating circumstance.  The fact that you are working on an overseas work assignment would count as an extenuating circumstance.  The prorata reduction is up to the five year mark.

No more purchasing of another property required. 



There is a different exception you may be thinking about, the tax-free exchange of one business property for another, called a Like-Kind exchange or a 1031 exchange.  You cannot exchange a US property for a non-US property, so this will not work for you.

Thank you so  much for the info!!

I would suggest that you take advice on UK tax before committing to buying here.  Purchase of a UK house will lose you several potentially valuable UK tax deductions so may not be the best thing to do...

guya- can you be more specific re: buying a UK house losing out on UK tax deductions?

If the initial expectation is for less than 2 years then costs such as UK rent and commuting can often be deducted on the UK tax return.  If the assignment is for less than 3 years then income relating to non-UK workdays can escape UK taxation.

Buying a UK home makes the UK tax authorities think you'll stay longer so both of these valuable deductions disappear.

thanks for the info.  i've been here for 2 1/2 years already.  probably a few more.  so those deductions would apply to me.