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Buy to Let for US tax purposes

Buy to Let for US tax purposes

Old Jan 5th 2011, 5:56 pm
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Default Buy to Let for US tax purposes

Hi All,

We moved over in Sept 2009 and have filed 1 UK Tax return and 1 USA tax return, with another US return due soon.

We still own our house in the UK and on the recent UK return I declared all the rental income and costs associated with that.

Do we need to declare the same in the US? If yes, can we claim benefit on the interest that is being charged back in the UK by the mortgage company? Or do they only look at the revenue generated?

I am aware that the US look at worldwide earnings, but as I have already declared and paid tax on these earnings, I am not sure how it sits.

Any general, non advisory advice appreciated from anyone in a similar position.

Thanks

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Old Jan 5th 2011, 6:13 pm
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Default Re: Buy to Let for US tax purposes

Yes you do have to pay US tax.

You can deduct mortgage interest, insurance, agents fees etc etc (just like the UK) and you can also deduct any UK taxes paid.

There are also allowances for depreciation (and hence you might want to use an accountant this time round) based upon the capital value. http://realestate.about.com/od/knowt...depreciate.htm

(as an aside, I assume you completed an NRL1 when you left?)

You will end up paying more tax - in the UK you can use up your personal allowance (circa GBP7K) against your profit before paying tax, in the US your own salary etc has already used up any allowances and the whole profit sits at your marginal tax rate.

I would consider forking out for a good accountant who has experience of foreigners tax implications - will probably save you money over their costs and you can use the knowledge gained next time around on your own.
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Old Jan 5th 2011, 6:30 pm
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Default Re: Buy to Let for US tax purposes

We also have a UK property and declare income on it for US tax purposes.

In addition to management and maintenance expenses (we don't have a mortgage on it), our accountant also offset against the income a significant expense we incur by visiting the property annually in order to inspect it - the cost of flights to the UK for the family......
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Old Jan 5th 2011, 9:46 pm
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Smile Re: Buy to Let for US tax purposes

Originally Posted by Swisstony View Post
We also have a UK property and declare income on it for US tax purposes.

In addition to management and maintenance expenses (we don't have a mortgage on it), our accountant also offset against the income a significant expense we incur by visiting the property annually in order to inspect it - the cost of flights to the UK for the family......
hi, is this possible? We also rent our house in England and declared the income from it on last years taxes. We do have a mortgage though.
How does this work?

Thanks!
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Old Jan 6th 2011, 1:31 am
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Default Re: Buy to Let for US tax purposes

Originally Posted by Cape Blue View Post
Yes you do have to pay US tax.

You can deduct mortgage interest, insurance, agents fees etc etc (just like the UK) and you can also deduct any UK taxes paid.

There are also allowances for depreciation (and hence you might want to use an accountant this time round) based upon the capital value. http://realestate.about.com/od/knowt...depreciate.htm

(as an aside, I assume you completed an NRL1 when you left?)

You will end up paying more tax - in the UK you can use up your personal allowance (circa GBP7K) against your profit before paying tax, in the US your own salary etc has already used up any allowances and the whole profit sits at your marginal tax rate.

I would consider forking out for a good accountant who has experience of foreigners tax implications - will probably save you money over their costs and you can use the knowledge gained next time around on your own.
Cape Blue,

Thanks for the pointers on depreciation. We did the NRL1 forms when we left the UK.

We aren't covering the mortgage at the moment with the rental, so I am hoping we won't have too much tax to pay....fingers crossed.

I have been recommended a good local expat tax guy, so hopefully he will be able to guide me on the ins and outs and your pointers...

...flights? That seems like a good one! Bit cheeky, but a good one!
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Old Jan 6th 2011, 1:42 am
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Default Re: Buy to Let for US tax purposes

Originally Posted by ademcc View Post
Cape Blue,

Thanks for the pointers on depreciation. We did the NRL1 forms when we left the UK.

We aren't covering the mortgage at the moment with the rental, so I am hoping we won't have too much tax to pay....fingers crossed.I have been recommended a good local expat tax guy, so hopefully he will be able to guide me on the ins and outs and your pointers...

...flights? That seems like a good one! Bit cheeky, but a good one!
Depends upon your ratio of interest to capital repayment is - if you add-in the insurance (assume you have landlords insurance), letting agent fees, Gas safety, wear & tear etc, it sounds like you will have no UK tax to pay. Adding in depreciation and it could easily be that you get to write-off a loss on your US tax return and (in effect) get a rebate!

On the flights issue, I also would be interested to hear some more details myself, my UK accountant (who does my Ltd Co tax) said that I would have to prove that the trip was solely (100%) for the purposes of visiting the house.
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Old Jan 6th 2011, 1:59 pm
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Default Re: Buy to Let for US tax purposes

Originally Posted by Cape Blue View Post
On the flights issue, I also would be interested to hear some more details myself, my UK accountant (who does my Ltd Co tax) said that I would have to prove that the trip was solely (100%) for the purposes of visiting the house.
Here are the rules for deducting travel expenses for trips OUTSIDE the United States:

1. Trip less than 1 week - 75% or more for business - deduct 100% of transportation costs

2. Trip less than 1 week - less than 75% for business - decuct business % of transportation costs

3. Trip 1 week or more - any business % - deduct business % of transportation costs
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Old Jan 6th 2011, 2:36 pm
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Default Re: Buy to Let for US tax purposes

Originally Posted by ademcc View Post
We aren't covering the mortgage at the moment with the rental, so I am hoping we won't have too much tax to pay....fingers crossed.
Keep in mind that you can deduct the mortgage *interest* and not the whole mortgage payment.
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Old Jan 6th 2011, 9:19 pm
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Default Re: Buy to Let for US tax purposes

Originally Posted by Peter Newton View Post
Here are the rules for deducting travel expenses for trips OUTSIDE the United States:

1. Trip less than 1 week - 75% or more for business - deduct 100% of transportation costs

2. Trip less than 1 week - less than 75% for business - decuct business % of transportation costs

3. Trip 1 week or more - any business % - deduct business % of transportation costs
Thank you Peter - is this IRS-approved?
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Old Jan 7th 2011, 10:47 pm
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Default Re: Buy to Let for US tax purposes

Originally Posted by TimNiceBut View Post
Keep in mind that you can deduct the mortgage *interest* and not the whole mortgage payment.
Yes...I nearly got carried away! Having checked, I was astounded to see how much my Interest was as a percentage of the payment we make each month. I guess I didn't really pay that much attention until now. I just used to get the yearly statement and check for any anomalies, and what we still owed...now however taking all costs into account it potentially works out pretty well for us from a US point of view.
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Old Jan 7th 2011, 11:07 pm
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Default Re: Buy to Let for US tax purposes

we declare out uk rental income and mortgage payments etc on the US return. We just put the same on the UK return but any 'profit' was well inside our allowance so the tax return came in at zero. we do see a nice rebate on the US return (usually) from the mortgage interest we pay here in the US.
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