CRESCO INTELLIGENCE · US TAX
Dubai charges you nothing when you sell. The IRS does. And you can owe it even if you sell for exactly what you paid.
Every Dubai brochure says the same thing: no capital gains tax. For a Dubai resident that is true. For a United States citizen or green card holder it is half the story. The UAE does not tax the gain, but the United States taxes its citizens on worldwide income, and there is no income tax treaty between the two countries. So the gain on your Dubai apartment lands on your Form 1040 exactly as a gain on a condo in Phoenix would.
This page walks through what that bill is made of, with a worked example in dollars, so nobody at your closing table in Dubai is the first person to tell you.
If you rented the apartment out, US tax law requires you to depreciate the building over 30 years under the Alternative Depreciation System, the rule for foreign residential rental property placed in service after 2017. Each year that depreciation lowers your taxable rent. It also lowers your cost basis. When you sell, the IRS wants the depreciation back, taxed at up to 25 per cent as unrecaptured section 1250 gain.
The rule is "allowed or allowable". If you never claimed the depreciation, your basis is still reduced as if you had. Skipping it does not avoid the recapture. It just means you paid more tax on the rent along the way.
Take the median registered two bedroom apartment in Dubai in August 2026: $557,434 on the Dubai Land Department register. Assume an American buys it, pays the 4 per cent transfer fee and a 2 per cent agency fee, rents it for six years, and sells it.
| Line | Sold at the same price | Sold 10% higher |
|---|---|---|
| Purchase price | $557,434 | $557,434 |
| Plus transfer fee (4%) and agency fee (2%) | $33,446 | $33,446 |
| Cost basis | $590,880 | $590,880 |
| Depreciation over six years (building taken as 80% of cost, 30 years) | $94,541 | $94,541 |
| Adjusted basis at sale | $496,339 | $496,339 |
| Sale price | $557,434 | $613,177 |
| Less 2% selling agency fee | $11,149 | $12,264 |
| Taxable gain | $49,946 | $104,575 |
| Of which depreciation recapture (up to 25%) | $49,946 | $94,541 |
| Of which long term capital gain (0%, 15% or 20%) | $0 | $10,034 |
| Maximum federal tax before state tax | about $14,400 | about $29,600 |
The maximum figures use the 25 per cent recapture ceiling, the 20 per cent top capital gains rate and the 3.8 per cent Net Investment Income Tax. Your own rate depends on your bracket. The 80 per cent building share is an assumption for illustration; the split between building and land is a judgment your CPA will make and document. None of this is a forecast of Dubai prices.
The left column is the one that matters today. With Dubai prices 5 to 15 per cent below the end of 2025, some American owners will sell at or near what they paid. They will still owe the IRS on the depreciation they took.
Everything you depreciated comes back first, taxed at your ordinary rate or 25 per cent, whichever is lower.
Whatever gain is left after recapture is long term capital gain if you held the property more than a year, taxed at 0, 15 or 20 per cent depending on your income. Sell within a year and it is taxed as ordinary income. For off plan purchases, the holding period question is worth raising with your CPA early, because the contract and the title deed are signed at different times.
If your modified adjusted gross income is above $200,000 single or $250,000 married filing jointly, rental income and capital gains are also subject to the 3.8 per cent Net Investment Income Tax.
Most states tax the gain too. California taxes capital gains as ordinary income. A Californian selling a Dubai apartment pays the state on the same gain the federal government taxes.
Americans who sell property in London or Toronto usually claim a foreign tax credit for the tax paid there. In Dubai there is no tax paid there, so there is nothing to credit. The zero at the Dubai end does not reduce the US bill. It simply means the US is the only tax collector in the transaction.
The main home exclusion lets you exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned the home and lived in it for at least two of the five years before the sale. The IRS sets no rule that the home must be in the United States. Two caveats: years the property was rented rather than lived in can reduce the exclusion, and depreciation taken during rental years is still taxed. For Americans who moved to Dubai and lived in the property, this is the most valuable line in the tax code.
Section 1031 says real property inside the United States and real property outside it "are not property of a like kind." You cannot sell a Dubai rental and defer the gain into a Texas rental, or the other way round. What Americans rarely hear is the other half: foreign real property is like kind to other foreign real property. Selling a Dubai investment unit and buying another investment property outside the United States, in Dubai or elsewhere, can qualify for a 1031 exchange if every normal rule is met, including a qualified intermediary, identification within 45 days and completion within 180 days.
Your gain is measured in dollars: the dollar cost when you bought against the dollar proceeds when you sell. In most countries that adds currency gains and losses to the calculation. The dirham has been pegged at 3.6725 to the dollar since 1997, so for a cash buyer the currency effect on the property is close to zero. If you financed with a dirham mortgage, ask your CPA about the separate currency rules for the loan.
Your sale and purchase agreement, the Dubai Land Department receipts and title deed, broker invoices, service charge receipts, any improvement invoices, the rental records, and a depreciation schedule your CPA set up in year one. An American selling in year eight with none of these will pay more than one who kept them.
Not to the UAE, which does not tax individuals on property gains. Yes to the United States, which taxes citizens and green card holders on worldwide gains. There is no US and UAE income tax treaty and no Dubai tax to credit.
Yes, if you rented it. Depreciation lowers your basis, and the depreciation comes back as taxable gain at up to 25 per cent even when the sale price equals the purchase price.
Foreign residential rental property placed in service after 2017 is depreciated over 30 years, straight line, under the Alternative Depreciation System. Land is not depreciated.
Not into US property. Section 1031 treats US and foreign real estate as not like kind. Foreign investment property can generally be exchanged for other foreign investment property if all 1031 rules are met.
It can, if you owned and lived in the home for two of the five years before sale. Rental periods and depreciation reduce the benefit.
Example price: Dubai Land Department register, median registered two bedroom apartment sale, August 2026, converted at 3.6725. Tax rules: 26 US Code section 1031(h); IRS Topic 701 on the main home exclusion; IRS guidance on the Net Investment Income Tax; Alternative Depreciation System recovery periods for foreign residential rental property as summarised by US expat tax practitioners. This is general information, not tax advice. Your CPA decides the building and land split, your holding period and your rate.
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Price is only part of what you need in the bank. We worked out the full cash requirement, including the Land Department transfer fee, the service partner fee and the Central Bank deposit caps, in how much money you need to buy property in Dubai.