Andrea4

We sold our flat in England last year and now trying to fill in our 2016 1040 for the IRS.
We have a small capital gain. Do we take the buying and selling price in pounds and convert the capital gain in pounds to dollars at the rate at the time of sale or is it the difference between the dollar equivalents pertaining at the purchase and sale dates ?
We are surprised at how different the CG can be.
Thanks for help to any tax experts out there !

ian-mstm

Calculate the difference between the selling price and the purchase price in pounds. Convert that to dollars based on the date of sale. XE.com has a calculator that will give you the exchange rate on a specific date.

Ian

theOAP

It is the difference between the dollar equivalent of what the flat was purchased for and the dollar equivalent of what the flat was sold for. In other words purchase price in dollars on date of purchase and selling price in dollars on date of sale.

Depending on when in 2016 the flat was sold, you may find you sold for less than you purchased thanks to the devaluation of the £.

If so, that's great, except when this occurs it usually means bad news in terms of a mortgage, if you had one. In other words, for US tax purposes, you may have borrowed more than you paid back, again thanks to exchange rates and the drop in the £. That gain (a fictitious paper profit) on the mortgage is reportable as income to the US. See: 988 transactions.

Steve_

Which can alter it so that you may in fact have a capital loss, because Sterling has plummeted.

Anyway, report on schedule D, claim a foreign tax credit for the UK tax on 1116. CGT is higher in the UK so in fact you end up paying the higher of the two amounts.

Andrea4

Thanks all for your responses.
I will work out the CGT both ways and submit the one most favourable to me !

Pulaski

If there was a loan (mortgage) secured on it, you may (will almost certainly, due to the collapse of sterling) have made a capital gain on the loan, which will be subject to tax.