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Breaking up our ISAs in the UK

Breaking up our ISAs in the UK

Old May 4th 2013, 1:03 pm
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Default Breaking up our ISAs in the UK

Is the interest earned on ISA liable to be taxed in the US?
The interest will be less that £200 and we are actually thinking of transferring all the savings which is around 100k, are all these liable for taxation?

One more thing, we sold our flat where we lived for 3 years in the UK for 216k wherein we got just 30K back after the mortgage was redeemed. does this qualify as not taxable? I didn't fully understand what the IRS meant by the $250k gain not being taxable.

Thanks
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Old May 4th 2013, 3:28 pm
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Default Re: Breaking up our ISAs in the UK

ISAs can be tricky. Cash simpler than shares. Some (most) institutions will insist you close your account once they find out you are a resident of the US. You will probably have to file fbar and facta depending.

House depends on if it was your primary residence and if you sold it soon enough. Cant remember time frame.
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Old May 4th 2013, 4:17 pm
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Default Re: Breaking up our ISAs in the UK

Originally Posted by anipilot View Post
Is the interest earned on ISA liable to be taxed in the US?
The interest will be less that £200 and we are actually thinking of transferring all the savings which is around 100k, are all these liable for taxation?

One more thing, we sold our flat where we lived for 3 years in the UK for 216k wherein we got just 30K back after the mortgage was redeemed. does this qualify as not taxable? I didn't fully understand what the IRS meant by the $250k gain not being taxable.

Thanks
If you lived in your home for at least 2 of the previous 5 years, there is an exclusion of $500K if married and filing jointly ($250K if single or married filing seperately) on any gain on the sale of your home. So therefore if you purchased the property for $200K after expenses (real estate fee, title fees, solicitor fees, transfer fees, etc.) and sold it for $300K after expenses, there would be a gain of $100K ($300K-$200K=$100K) and if you lived in the home for 2 of the 5 previous years, there would be no tax on that gain since the gain is less than $500K or $250K depending on your filing status.

If you purchase a new home in the US and live in it for 2 of the previous 5 years before you sell it, again you will be eligible for the exclusion of either $250K or $500K on the gain from that sale.

Therefore it is the gain on the sale that is referred to by the IRS and has nothing to do with the amount owed on the mortgage. So even if you didn't have a mortgage on your current sale, only the gain (sale price minus purchase price) determines the gain and if that gain is less than the exclusion level, no tax is owed on the sale.

In theory, you could purchase and sell a primary residence every two years and never pay taxes on the gain from those sales as long as the gain from each of those sales is below the exclusion level.

Last edited by Michael; May 4th 2013 at 4:39 pm.
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Old May 5th 2013, 7:12 am
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Default Re: Breaking up our ISAs in the UK

The income in the ISA is always US taxable. You'll have been reporting the account itself on your FBARs and 8938s. Bringing the money to the US makes no difference.

You may or may not qualify for the $250,000 or $500,000 exclusion; it will depend if you meet the use and the time tests. Separately seeing where the exchange rate is today you are quite likely to realise a taxable gain on the repayment of a foreign currency mortgage.
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