vtcarter6

We've been living in the US for a month and the completion of our house sale in the UK took place about two weeks ago. We're getting ready to transfer the money over. A couple of questions:

--Does all of the equity we had in our house (including whatever increase in value we realized between when we purchased and when we sold it) need to go back into another property in order to avoid paying CG tax?

--Anyone have any idea how long we have to reinvest that money in a property (as we look around at houses) before becoming subject to CG tax?

Thanks!

JAJ

Presumably you have lived in the house for 2 years in the last 5 - have you taken into account that at least some of the gain (if not all of it) may be exempt?

Michael

Exclusion from capital gains for sale of primary residence ($500,000 filing married filing jointly or $250,000 for married filing separately or single).

Publication 523 (2013), Selling Your Home

nun

Just an observation and a bit of advice for the future for the OP and anyone else coming to the US......make sure you understand the tax implications of major transactions like the sale of a home before you go through with it or indeed come to the USA. Asking how capital gains might be taxed after the sale is really too late. This now begs the question of what else do you own back in the UK; stocks and shares ISAs come to mind.

As others have said if you are a US tax resident you get significant tax free capital gains allowances on the sale of your principal residence. Also if you will be filing as a non-resident alien for 2014 there won't be any US tax on the sale of your overseas home.

S Folinsky

You may want to consult with a CPA or Tax Attorney -- your question is not posed precisely right. As a general rule, the amount of "equity" converted to cash is NOT the way to figure out taxable gain. One needs to determine the "basis" of the acquisition price [usually the purchase price] and compute the profit. These rules can sometimes be fiendishly complicated.

BTW, as posed, the question implies that you think the sales proceeds are not taxable if they are not repatriated to the US. I think that would be a fallacy.

MsElui

yes Mr F is right - they will make any calcs based on the cost of the house (CONVERTED TO DOLLARS at time of purchase) vs the sale price (CONVERTED TO DOLLARS at the time of the sale). The exchange rate can work for or against you. For us- it went the WRONG way and we left the sale too late and have a hefty tax bill to pay.

Sounds like you haven't left it to late BUT get help in calculating what you may own if anything to be sure/safe.

S Folinsky

I'm not in the habit of giving much in the way of advice here other than "it is a good idea to get professional advice." That said, I would recommend making sure that the funds from the sale are not spent until the capital gain tax [if any] is computed. [Also, some STATES also have capital gains taxes]. One of the worst possible scenarios is owing tax and not having the money to pay it.

If one has the money to pay the tax, then it is quite annoying, but the tax authorities are not on your back.

nun

The OP is using UK terminology and ideas for the way a real estate gain might be taxed. The US tax status for the OP on their 2014 1040 is key here. Will they be an NRA and file a 1040NR or resident and filling a 1040? So we need to know their visa/residency status.

petitefrancaise

I'd like to insert another note of caution - it's not relevant in the OP's case but just in case you're coming from a country other than the UK (like France).

Check on the CGT rules for the country in which you are selling your "primary residence". France changed the rules this year so that you have to sell within 1 year of leaving if you wish to claim it as your primary residence and you can only do this once.

vtcarter6

Sorry for the confusion. To clarify, I am a USC and husband resident alien. We'll be filing jointly for 2014. So just to recap, this was our primary residence and its sale was completed within a month of us leaving the UK and establishing US residence. The profit we made on the sale does not exceed $500,000. From what I've understood then, we are not liable for any capital gains tax.

I think I've confused this with another property tax issue...I remember hearing about someone who sold a rental property in the US and did not reinvest the money in another property. They were hit with a big tax. So this won't happen to us if the proceeds from the sale of our UK property are sitting in a bank account for a little while while we look for a house here?

Sorry for the cluelessness...hence the questions !

nun

As a US citizen you will be taxed on any gains you have on the sale of your UK home. As you are filing married jointly you'll get $500k tax free allowance. Make sure you include the effect of currency exchange rates when you calculate your gains for US tax purposes. If the total is less than $500k there will be no US tax to pay.

fozzyb

There should be no tax to pay - but you do still have to declare the sale to the IRS and do the sums to show that there is no tax to pay. I can't remember the form number, but there is one....

JAJ

IRS publication 523 says:
Publication 523 (2013), Selling Your Home

Do not report the 2013 sale of your main home on your tax return unless:
You have a gain and do not qualify to exclude all of it,
You have a gain and choose not to exclude it, or
You received Form 1099-S.

Michael

You are probably referring to Section 1031 "exchange of like kind of property". That is very complex IRS law and very difficult to use by most people since it has to be an 'exchange' of properties and not a sell and a purchase of properties.

To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.

Like-Kind Exchanges Under IRC Code Section 1031

Also someone can't exchange a rental property for a primary residence that he/she plans to live in.

In your case, you don't have any tax issues due to the exclusion for capital gains on the sale of a primary residence.

FatFrank

I'm not advocating this, but I know of plenty of people that sold their UK property shortly after moving to the US and never declared it anywhere.......