Sale of Real Estate in Brazil: U.S. Tax Implications for U.S. Tax Residents
- Juliana Furlan Zenti
- Sep 9, 2025
- 3 min read
If you are a U.S. tax resident, you must report all of your worldwide income and capital gains. This means that when selling real estate in Brazil, the profit must be included in your U.S. tax return, even if the tax has already been paid in Brazil.
This subject generates many questions, especially regarding how the IRS treats capital gains, how the currency conversion works, and which benefits may apply, such as the main home exclusion.
1. When is the gain considered short-term and when is it long-term?
In the U.S., capital gains are classified into two categories:
Short-term capital gain: when the property is sold after being held for less than one year.
This gain is taxed as ordinary income, following the federal income tax brackets, which may be as high as 37% (for higher income levels).
Long-term capital gain: when the property is sold after being held for more than one year.
In this case, the tax rates are reduced, ranging between 0%, 15%, or 20%, depending on the taxpayer’s income bracket.
In some cases, the Net Investment Income Tax (NIIT) of 3.8% may also apply, for incomes above $200,000 (single) or $250,000 (married filing jointly).
👉 Practical example: If you purchased an apartment in Brazil in 2018 and sold it in 2025, the gain is long-term and will be taxed at capital gain rates (0%, 15%, or 20% + 3.8% if applicable).
2. How to calculate capital gain in U.S. dollars?
The calculation follows the rules of IRS Publication 514 and Publication 525.
Purchase price (cost basis): must be converted into U.S. dollars using the exchange rate on the acquisition date.
Sales price (sales proceeds): converted into U.S. dollars using the exchange rate on the sale date.
Gain or loss: difference between the sales value in U.S. dollars and the adjusted cost basis in U.S. dollars.
⚠️ Important: you cannot simply convert the net profit in Brazilian reais at the current exchange rate. Each transaction (purchase and sale) must be converted at the exchange rate on the respective transaction date.
👉 Simplified numerical example:
Purchase in 2015: R$ 500.000 → exchange rate 1 USD = 3.00 → cost basis in USD = $166,667.
Sale in 2025: R$ 1.000.000 → exchange rate 1 USD = 5.00 → sales proceeds in USD = $200,000.
Taxable U.S. gain = $33,333 (even though the profit in reais was much greater).
3. What happens if there is a loss?
If the sales value converted to U.S. dollars is lower than the cost basis converted at the acquisition date, a capital lossoccurs.
This loss can be used to offset other capital gains reported in the same year in the U.S.
If a loss remains, up to $3,000 per year may be deducted against other ordinary income (such as wages).
The remaining balance may be carried forward to future years (loss carryforward).
👉 This means that even an unfavorable currency fluctuation may generate a deductible loss in the U.S., even though a profit in reais was realized in Brazil.
4. The Main Home Exclusion
If the property sold in Brazil was your principal residence, you may apply the benefit provided under IRC §121:
Up to $250,000 of gain may be excluded ($500,000 for married couples filing jointly).
To qualify, you must have:
Owned the property for at least 2 of the last 5 years prior to the sale, and
Used the property as your principal residence for the same period.
👉 Example: You purchased an apartment in Rio in 2010, lived in it until 2020, and sold it in 2025.
Although you lived there for more than 2 years, because you did not meet the “2 out of the last 5 years” requirement immediately prior to the sale, you do not qualify for the exclusion.
5. Foreign Tax Credit (FTC)
If you paid tax in Brazil on the capital gain, you may use that amount as a credit with the IRS, through Form 1116, to avoid double taxation.
The credit is limited to the U.S. tax that would be due on that same gain.
In practice:
If the effective tax rate in Brazil was higher than in the U.S., you may not owe anything further in the U.S.
If the U.S. tax rate is higher, there may be an additional tax liability to pay.
6. Conclusion
For U.S. tax residents, the sale of real estate in Brazil is not just an international transaction — it is a taxable event that requires careful attention to several factors:
Classification as short-term or long-term gain.
Proper currency conversion, always using the exchange rate on the transaction date.
Possibility of offsetting capital losses in U.S. dollars.
Application of the main home exclusion in specific cases.
Use of the Foreign Tax Credit to prevent double taxation.
