Published on and written by Cyril Jarnias
Buying or holding real estate in the United States is increasingly appealing to French nationals, whether it be a second home in Florida, a rental apartment in New York, or an investment through a structure. But behind the postcard image, taxation quickly becomes a labyrinth: U.S. tax, French taxation, tax treaty, tax credits, IRS forms… and, at the time of resale, the crucial question of capital gains.
For a French resident investing in real estate in the United States or a Franco-American dual national residing in France, the goal is not only to minimize tax, but above all to understand the interplay between the IRS, the Franco-American tax treaty, and French rules on capital gains, in order to avoid double taxation and penalties for failure to file.
Understanding the basics: who taxes what, and at what rate?
Before diving into the details of capital gains on real estate, it is essential to clearly distinguish between the U.S. and French tax systems and their underlying logic.
In the United States, taxation is primarily based on citizenship and U.S. tax residency status. A U.S. citizen or green card holder is taxable on their worldwide income, wherever they live and wherever the property is located. Simply owning a foreign property is not taxable in itself, but the income (rent, capital gains) must be reported.
In France, a tax resident is taxable on all their worldwide income and capital gains, including those from properties in the United States. Non-residents are only taxable in France on French-source income.
On capital gains on real estate, both countries have separate rate schedules.
Base rates: United States vs. France
In the United States, capital gains taxation distinguishes between short-term and long-term. Gains on assets held for one year or less are taxed at ordinary rates (10% to 37%), while long-term capital gains (held for more than one year) are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income. Additionally, the Net Investment Income Tax (NIIT) adds 3.8% for high-income taxpayers on their investment income, including real estate gains.
In France, the standard total tax rate on a real estate capital gain (excluding primary residence) before allowances is 36.2%, consisting of 19% income tax and 17.2% social charges.
The following table illustrates these base levels before taking into account treaties and tax credits.
| Country / Tax | Type of gain | Base rate (excluding surtaxes) |
|---|---|---|
| United States – long-term gain | Property held > 1 year | 0%, 15%, or 20% depending on income |
| United States – short-term gain | Property held ≤ 1 year | Ordinary rates (10% to 37%) |
| United States – NIIT | Investment income | 3.8% additional for high earners |
| France – tax on gain | Real estate (not primary residence) | 19% |
| France – social charges | Same gain | 17.2% (total 36.2%) |
The existence of these two systems creates an obvious risk of double taxation for a French person selling a property located in the United States. This risk is precisely addressed by the Franco-American tax treaty.
The Franco-American tax treaty: the key to avoiding double taxation
The tax treaty between France and the United States aims to allocate taxing rights between the two states and to establish mechanisms to avoid effective double taxation. Contrary to a common misconception, it never exempts a U.S. citizen or a French tax resident from reporting their income or gain: it essentially organizes tax credits and the priority of taxation.
Article 13: the basic rule on real estate capital gains
Article 13 of the treaty deals with capital gains. For real estate, the rule is clear: gains derived from the alienation of immovable property are taxable in the state where the property is located. In other words, a capital gain on a property located in the United States is taxable in the United States. However, this article does not grant absolute exclusivity: the seller’s state of residence (France for a French resident) generally retains the right to tax the gain as well.
A French resident sells a property located in the United States. They first pay the capital gains tax to the U.S. IRS. In France, they report this gain: the tax administration calculates the tax due under domestic law (19% + 17.2%, after any allowances), then applies a tax credit for the tax already paid to the United States, thereby eliminating double taxation.
A simplified diagram helps to visualize this mechanism.
| Step | United States (IRS) | France (French tax resident) |
|---|---|---|
| 1. Sale of property | Calculation of gain and U.S. tax | – |
| 2. Tax payment | Payment to IRS (0–20% + possible NIIT) | – |
| 3. Reporting in France | – | Reporting the gain on forms 2042/2047 |
| 4. Calculation in France | – | Theoretical French tax (19%+17.2%) |
| 5. Tax credit | – | Imputation of U.S. tax paid (tax credit) |
The goal is that the overall burden approaches the higher rate between the two systems, but without a penalizing cumulative effect. In other words, if France would calculate 36.2% and the IRS has collected 15%, France will claim the difference of approximately 21.2%, subject to allowances and special cases.
The “saving clause” on the U.S. side
The treaty contains a saving clause that allows the United States to tax its citizens and permanent residents as if the treaty did not exist. In practice, a U.S. citizen living in France, even if considered a French tax resident under the treaty, remains taxable by the IRS on their worldwide income, including a capital gain on a property in France or the United States. It is then the Foreign Tax Credit (Form 1116) mechanism that avoids double taxation, not outright exemption under the treaty.
A Franco-American dual national must manage the tax rules of both systems simultaneously, even after settling in France, due to the specificities of French and U.S. legislation.
Capital gains on real estate on the IRS side: calculation, primary residence regime, and forms
For a non-American French person selling a property located in the United States, the first tax layer is that of the IRS. The method of calculating the gain and its treatment are standard, but with several nuances, especially in the case of use as a primary residence.
Calculating the capital gain in dollars
The IRS requires that the entire transaction be expressed in dollars. The calculation follows a standard formula:
> Gain = (selling price – selling expenses) – adjusted basis
The adjusted basis is the purchase price plus acquisition costs and improvement costs, minus any depreciation taken (in case of rental) and converted into dollars at the exchange rate in effect on the date of each cash flow (purchase, improvements). The selling price, meanwhile, is converted at the rate on the date of sale.
Once the gain is determined, the holding period (more or less than one year) qualifies the gain as short-term (taxed at ordinary rates, up to 37%) or long-term (preferential rates of 0%, 15%, or 20% depending on income).
List of essential forms to know
First key form to fill out for initial steps
Second form needed for primary declarations
– Form 8949: detail of the sale.
– Schedule D (Form 1040): summary of capital gains and losses.
– Form 1116: foreign tax credit if France also taxed the gain.
Even if no net tax is due in the United States after a tax credit, the sale must be reported to the IRS if the seller is taxable in the United States (citizen, U.S. tax resident, or case subject to FIRPTA for non-residents).
Primary residence exclusion (Section 121)
The United States provides a very favorable regime for a primary residence, even if located abroad: Section 121 of the Internal Revenue Code. If the owner has lived in the home as their primary residence for at least two years out of the five years preceding the sale (the two years do not need to be consecutive), they may exclude a significant portion of the gain.
The limits are as follows:
| Taxpayer situation | Maximum Section 121 exclusion |
|---|---|
| Single | $250,000 |
| Married couple – joint return | $500,000 |
To benefit, two tests must be met: an ownership test (at least 24 months of ownership in the last five years) and a use test (at least 24 months of actual occupancy as a primary residence). This exclusion cannot be used more than once every two years, and restrictions apply if the home was acquired through a like-kind exchange (1031) within the last five years.
An interesting feature for a French expatriate: this exclusion can apply to a primary residence located outside the United States, as long as the occupancy and ownership conditions are met. Concretely, an American living in France can exclude up to $250,000 or $500,000 of gain on their house in France upon sale, for U.S. tax purposes.
When the entire gain is covered by the exclusion and no Form 1099-S has been received, the sale generally does not need to be reported to the IRS. In practice, it is prudent to carefully document the situation.
FIRPTA: withholding tax on sales by non-residents
When a non-resident alien (in the U.S. sense) sells real estate located in the United States, the Foreign Investment in Real Property Tax Act (FIRPTA) imposes a withholding mechanism. The buyer, acting as a withholding agent, must generally withhold a percentage of the sales price and remit it to the IRS using Forms 8288 and 8288-A, unless an exemption or a withholding certificate (Form 8288-B) is obtained.
This withholding is not the final tax, but a security deposit for the U.S. Treasury. The seller must then file a return with the IRS to calculate the actual gain, compare the tax due to the amount withheld, and request a refund of any excess if applicable.
For a non-American French resident, FIRPTA is therefore a matter of cash flow and procedure: properly anticipating the deadlines and obtaining a U.S. taxpayer identification number (ITIN, via Form W-7) is essential to prevent the withholding from becoming dead money for several years.
Capital gains on real estate on the French side: rates, allowances, and exemptions
Once the U.S. layer is handled, the French resident must face French taxation. France applies the same basic rules to real estate capital gains, whether the property is located in France or abroad: a French resident must report the taxable gain on their annual tax return and, for foreign properties, complete specific forms (notably Form 2047 and 2042 for foreign-source income).
French rate schedule and allowances for holding period
Under domestic law, the capital gain on real estate other than the primary residence is subject to two levies:
– income tax at 19%;
– social charges at 17.2%.
France applies a system of allowances for holding period that gradually reduces, then eliminates the tax after a long holding period.
For the income tax component at 19%:
| Holding period | Reduction of the taxable base at 19% |
|---|---|
| 0 to 5 years | 0% |
| 6th to 21st year | 6% per year |
| 22nd year | 4% |
| Beyond 22 years | Full exemption |
For social charges at 17.2%:
| Holding period | Reduction of the base for 17.2% |
|---|---|
| 0 to 5 years | 0% |
| 6th to 21st year | 1.65% per year |
| 22nd year | 1.6% |
| 23rd to 30th year | 9% per year |
| Beyond 30 years | Full exemption |
Consequently, after 22 years of ownership, the gain is no longer subject to the 19% income tax; after 30 years, it also escapes the 17.2% social charges. These allowances apply to both residents and non-residents for properties located in France, and by analogy, France applies the same mechanism for taxing properties located in the United States when held by French residents.
Primary residence in France: full exemption
For a French resident, the primary residence rule is even more favorable than the U.S. regime: the capital gain on the primary residence is fully exempt, with no amount limit. The condition is that the home is the primary residence at the time of sale, meaning habitual occupancy until the sale, with some tolerances (putting it on the market before a move, divorce or separation, etc.).
For a non-resident, the sale of a former primary residence is exempt from tax if it occurs before December 31 of the year following the departure, and if the home was not made available to a third party, even free of charge, between the departure and the sale.
This contrast is important: in the United States, the Section 121 exclusion is capped ($250,000/$500,000 and subject to duration tests), but can apply to a foreign home; in France, the primary residence exemption is not capped, but requires that the home still be the primary residence at the time of sale (or within strictly defined timeframes after a move).
French forms for a capital gain on a U.S. property
In practice, a French resident who sells a property in the United States must: ensure compliance with U.S. and French tax obligations, report the income generated by the sale to the tax authorities of both countries, and potentially face withholding taxes at source.
For a property located in the United States, report the capital gain on a dedicated form applying French rules by analogy (without a French notary). Then transfer it to the annual income tax return (Form 2042, annex 2047 for foreign income). You may benefit from a tax credit for tax paid to the IRS, in accordance with Articles 13 and 24 of the tax treaty.
The calculation can be complex due to currency conversions: the capital gain must be calculated in euros for France, using the exchange rates at the time of acquisition and sale. It sometimes happens that a transaction that is neutral or shows a loss in dollars becomes a taxable gain in euros due to exchange rate fluctuations.
Practical cases: how does double taxation actually combine?
To measure the concrete impact of this mechanism, it is useful to reason in steps. Two parameters play a key role: the effective U.S. rate (0–20% + NIIT) and the effective French rate after allowances and social charges (up to 36.2%).
Simplified scenario
Imagine a French resident, not a U.S. citizen, who sells an apartment in Miami held for ten years, without it having been their primary residence.
– 1. On the U.S. side
– Long-term capital gain: taxed at 15% (for example).
– No Section 121 exclusion (not primary residence) and NIIT possible if their income is high.
The starting French effective rate of 36.2% can be reduced thanks to a holding period allowance for ten years.
– 3. Tax credit
– France imputes the tax paid to the IRS on the theoretical French tax.
– If the IRS has collected 15% and France calculates, after allowances, a charge of 20%, France will claim the difference of 5%.
– If the theoretical French charge is lower than the 15% already paid to the United States, no additional tax will be due in France, but the U.S. surplus will not be refunded.
If the property has been held for more than 22 years, the capital gains tax is fully exempt in France, but social charges remain due until 30 years. In this case, U.S. tax may become heavier than French taxation.
Rental income from a U.S. property: coordination of the two systems
Beyond capital gains, rents from a U.S. property held by a French resident are also subject to a double tax layer. The tax treaty clarifies that rental income is taxable in the country where the property is located (Article 6), but also allows the state of residence to tax this income, subject to a tax credit.
On the IRS side: treatment of rents
For a U.S. citizen or U.S. tax resident, rental income from a property located in the United States or abroad is taxed as passive income, reported on Schedule E of Form 1040, after deducting expenses: mortgage interest, property taxes, insurance, repairs, management fees, depreciation of the property (over a longer period for foreign properties). The net result (profit or loss) is then included in total income and subject to the federal rate schedule, plus, if applicable, the NIIT of 3.8%.
By default, a non-resident is subject to withholding on their U.S. rents, but they may elect to be taxed on a net basis by filing Form 1040-NR and reporting their rents net of expenses.
On the French side: worldwide rental income
The French tax resident must report these rents under real estate income, choosing between the micro-foncier regime (if total annual gross rents are below a certain threshold) and the actual regime (deduction of actual expenses). Social charges of 17.2% are added to the income tax, according to the progressive rate schedule.
The tax treaty provides that rental income is taxable in the United States, but France may include it in its tax base. The French resident obtains a tax credit for U.S. tax paid. The U.S. resident or citizen can use the Foreign Tax Credit (Form 1116) to impute French tax, creating an entanglement of cross-credits.
Again, the key is to properly identify the taxable amounts in each country, the effective rates, and the credit mechanisms, so as not to end up paying more than necessary due to a lack of coordinated reporting.
U.S. reporting obligations: the trap of IRS forms
For a French person who owns real estate in the United States, especially if they are a U.S. citizen or U.S. tax resident, the administrative burden can be as heavy as the tax itself. The IRS and Treasury require a multitude of forms related to bank accounts, foreign entities, and capital gains.
Among the main forms to know:
Summary of IRS forms needed to report rents, sales, and foreign assets.
Annual reporting of rents and expenses for rental properties.
Detail and summary of property sales (gains and losses).
Foreign tax credit to impute taxes paid in France or another country.
Report of foreign financial accounts if the total exceeds $10,000 at any time during the year.
Report of specified foreign financial assets above certain thresholds (e.g., $200,000 for a taxpayer living abroad).
Detailed information on foreign corporations, partnerships, or trusts that may hold properties.
Failure to file these forms can result in very severe penalties, often disconnected from the amount of tax at stake. For example, a “non-willful” omission of an FBAR can cost up to more than $16,000 per year per account, while failure to file a Form 8865 (foreign partnership) can lead to $10,000 in penalties per year per entity, with additional surcharges if the failure continues after notification.
For a French resident who has never reported their bank accounts or holding structure to the IRS, the Streamlined Filing Compliance Procedures are often the only viable option to regularize the situation while limiting financial consequences.
Practical strategies for French investors in U.S. real estate
Based on this overview, a few key points emerge for structuring a real estate investment in the United States intelligently when you are a French resident, with or without U.S. citizenship ties.
Choosing the right holding structure
For a non-American French resident, holding the property directly in one’s own name is often the simplest solution from a reporting perspective. Using entities (LLCs, partnerships, trusts, French SCI holding the U.S. property, etc.) quickly introduces additional layers of reporting on the IRS side (Forms 5471, 8865, 3520, 3520-A…) and can, in some cases, lead to double taxation if the structure is not recognized as transparent by the other country’s tax administration.
The supposed advantage of a U.S. LLC in terms of liability or succession must therefore be weighed against the additional tax and administrative cost.
Planning the resale to optimize allowances
The holding period plays a key role in both systems. On the French side, allowances for holding period lead to a full exemption from income tax after 22 years and full exemption from social charges after 30 years. On the U.S. side, a holding period of more than one year ensures access to long-term capital gain rates, often much more favorable than ordinary rates.
For a French investor, waiting to cross the key time thresholds before selling a property can significantly reduce the tax bill, especially in the case of a large capital gain.
Taking advantage of primary residence regimes
The very favorable rules applicable to primary residences on both sides of the Atlantic can also be leveraged, even in cross-border situations. An American living in France can benefit, for IRS purposes, from the Section 121 exclusion on the sale of their French primary residence (up to $250,000 or $500,000 of exempt gain). Conversely, a French resident selling their primary residence—whether in France or abroad—can benefit from the full exemption of capital gains in the French system, provided the occupancy conditions are met.
For a French expatriate in the United States, it is rare for a U.S. property to be their primary residence under both sets of laws. However, coordination between the French exemption upon return and the U.S. Section 121 exclusion can significantly reduce the taxable gain in both countries.
Securing double taxation relief via tax credit
The most delicate technical point is often the correct calculation and imputation of tax credits to avoid any double payment. For a French resident, the typical sequence is as follows:
– calculation and possible payment of tax to the IRS on the gain or rents;
– conversion into euros of the amounts and reporting in France, with application of holding period allowances;
– calculation of the theoretical French tax and imputation of a tax credit equal to the foreign tax paid.
Conversely, for a U.S. citizen domiciled in France, the sequence is often:
– calculation and taxation in France as a resident on the rents or gain;
– reporting the same income to the IRS in dollars, applying the Foreign Tax Credit (Form 1116) to impute French tax and, if necessary, additional credits for CSG/CRDS when these are considered income taxes and not social contributions.
In both directions, careful coordination and thorough documentation (dates, exchange rates, proof of foreign tax payment) are essential.
Conclusion: an attractive investment landscape, but one that requires a tax compass
U.S. real estate remains an attractive asset class for French investors, whether they seek geographic diversification, rental yield in dollars, or a foothold across the Atlantic. But real estate taxation in the United States for French nationals: IRS, treaties, and capital gains is not just a technical subject: it is a major financial issue for any investor who does not want to be taxed twice or fall into the trap of filing omissions.
U.S. rules (Section 121, FIRPTA, short/long-term gains) combine with French holding period allowances, primary residence exemption, and social charges. The tax treaty (Article 13 and tax credit) prevents double taxation but does not exempt from the obligation to report in both countries.
At the time of selling a U.S. property, a good tax strategy is rarely built in a few weeks: it is prepared from the purchase, by choosing the holding structure, anticipating the holding period, tracking financial flows, and keeping a precise history. For a French person planning to invest in U.S. real estate or a dual national living in France, seeking specialized advice on these matters is not a luxury: it is the condition for the real estate investment to deliver on its promises without a nasty tax surprise down the road.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
