One of the most overlooked tax-planning opportunities for U.S. expats is what happens when a U.S. citizen and a non-U.S. spouse jointly own foreign real estate.

One of the most overlooked tax-planning opportunities for U.S. expats is what happens when a U.S. citizen and a non-U.S. spouse jointly own foreign real estate.

Here’s a scenario I see often:

A couple owns an investment apartment abroad 50/50.

One spouse is a U.S. citizen; the other is a true nonresident alien (NRA).

They want to sell the property.

From the U.S. side:

The U.S. spouse is taxed on worldwide capital gains.

The NRA spouse is not taxed by the U.S. on foreign real estate.

Because of this, gifting the U.S. spouse’s share to the NRA spouse before the sale can eliminate U.S. capital gains tax entirely.

This is legal, straightforward, and widely recognized in cross-border planning.

When is this especially useful?

When there is little or no Israeli tax paid, meaning there is no foreign tax available to offset the U.S. gain with foreign tax credits.

This situation is very common in Israel when:

The couple sells an apartment, and then buys a new apartment within the permitted Israeli timeline triggering major Israeli capital gains tax exemptions or reductions.

In these cases, the U.S. spouse may face full U.S. capital gains tax with no Israeli tax to claim as a credit.

That’s exactly when this strategy becomes extremely valuable.

But suitability depends on the couple.

This strategy works best when the marriage is stable, the spouses view assets jointly, and they already own the property together.

In many communities, especially those with very low divorce rates, clients simply say:

“It’s okay, we trust each other.”

And in those cases, that’s not irresponsible - it’s statistically correct and objectively low-risk.

The tax planning reflects the reality of their family stability.

Israeli considerations matter, too.

Spousal gifts are generally tax-neutral under Israeli law, and (unlike parent-to-child transfers) they do not trigger the 4–5 year resale restriction.

The property can be sold immediately after the gift, aside from routine bank or approval processes.

Yes, the gift itself may be a U.S. reportable gift, but in almost all real-world cases it doesn’t create any actual tax, because it simply uses part of the donor’s almost $14 million lifetime exemption.

A Form 709 is filed, but no gift tax is paid.

The takeaway:

The tax code is the same for everyone, but the appropriateness of a strategy depends on people, culture, risks, incentives, and family structure.

Great tax planning isn’t just about the rules. It’s about understanding the people behind the number.