garfro

HI folks long time since I have been on here but found a lot of help before so wanted to ask a few questions
Myself UK/US and wife USC moved from California about 4 years ago to Uk and although I don't earn a tenth of what I earned in US I am somehow happier.
Anyways always filed taxes for 25 years with no problems but due to settling in here and finding work etc i have neglected filing for the last 4 years, my wife is visiting US now and meeting a CPA today to get us caught up, my questions are
1. I have rented my house in California for last 4 years ( crappy tenant but that's another story) it rents for $ 2800 a month and I make about $500 a month after I pay my mortgage, prop taxes etc, any idea if that is enough to pay taxes on $6000 per year and if so what kind of tax rate I would pay.
2. I am considering selling it and have about 350k of equity, and I understand that I don't meet the living in it for 2 of last 5 years criteria for full 500k exemption but do I get any credit for 1 of last 5 years?
I'm guessing I'm gonna get hit with a bill but how much?
3. So if I sell pay all taxes etc, and transfer money to UK to by house free and clear, are there any tax impications in UK?

Will probably have more questions but would appreciate input from anyone in similar situations
Thanks
Garfro

Pulaski

1. Don't forget depreciation on the purchase price of the building, but not the land. By the time you have included that, it is quite possible you have no taxable income at all.

2. Not sure - ask your CPA.

3. If you are now tax resident in the UK you will have do a capital gains tax calculation under UK tax rules, and you will get a reduction for the period you occupied the house as your primary home, as well as indexation allowance, and credit for any CGT paid in the US.

Transfering tbe proceeds has no tax consequences.

garfro

Thanks, my wife's relatives have been telling her that it was going to cost us $175000 (50%)

On #3
So I would file with HRMC and I would get a reduction on the period, sorry I don't understand also what is indexation allowance? And how would that credit be obtained
Sorry for being so clueless, first time for me doing this so very confused.
Can you elaborate on those points
Garfro

Pulaski

NP.

You don't pay UK CGT for periods you lived in the house, so if you owned it for 60 months, but lived in it for 26 months, rented it out for 10 months, then lived in it for 6 months, then rented it again for 18 months, you would be taxed on (no more than) the prorated gain over 28 months. So 28/60 × (sale price - purchase price - allowable expenses - capital improvements - indexation allowance) ..... There may be a further reduction for the period at the end, but I can't remember the details now, sorry.

Indexation allowance is for inflation - to ensure you are taxed on the gain in value if the asset, not on the loss in value of money. It's not much these days, but it will reduce your tax a little.

garfro

Well you made me feel a bit better earlier but just on a speakerphone with wife and CPA and not sure he is the right guy!! Told me that profit was only 195k and CGT was approx 70k. Can't be right☹️

Pulaski

Too high or too low? Without knowing the buying and selling price it's impossible to say, but those are the sorts of numbers that CGT calculations produce. .... I thought CGT in the US was 20%.

garfro

Nothing to hide her so here goes
Sell at 675k
Bought for 201k
Owe 270k
Estimated closing costs 40k
Purchased 20 years ago lived in fo 16 years
I'm sure there's other stuff like improvements, initial closing costs etc that would help to offset tax
Is that enough info to have a friendly go
Garfro

Pulaski

It looks like you get no benefit from having lived in it 4+ years ago, so based on the raw numbers you have given (BTW the amount owed is irrelevant), I am getting a number slightly more than the one you mentioned, but that may be because I used a higher tax rate. ..... I think which ever way you look at it, you're looking at a Federal CGT bill north of $50,000. There may also be a state CGT bill on top.

garfro

Hard to believe that if I sold it a year earlier I would have been free of CGT completely
I believe there is a one time exemption when you reach 55 might have to wait a few more months

garfro

Another quick question folks.... Is the CGT based on date of sale or in the fiscal year of sale
Eg lived in house until October but 3 years later sold house in Nov/Dec....does it have to be exactly to the month
Thanks
Garfro

durham_lad

I believe it is the date of sale, at least that is what I used when we sold a rental house in 2010. You will also be expected to use the exchange rate on the date of the scale.

At the time I used xe.com for historic spot rates but am not sure if that was entirely correct. I did the exchange rate on the gain, at the date of the sale, but I think I should really have done the conversion at the exchange rate on the day of purchase, and the day of sale and then calculated the gain, but maybe someone can confirm which method should really be used.