melusine

Hello, I wonder if someone can help me understand this a bit better? I've read through a few historic threads about this subject but I'm still confused.

This is my situation:

I moved to the US in December 2017. I paid off my mortgage just before I moved.

I bought my UK house in 2006 and its sale is currently due to complete on Dec 4, 2020. However, there are some problems with the chain which means the agent is suggesting we push the completion date back to after Christmas. I'm trying to work out whether I should allow this.

I paid £369,000 for it and am selling it for £410,000.

I think that I become liable for U.S. CGT on December 18, 2020 as up until that date I will have lived in it for 2 out of the previous 5 years. I assume if I complete before Dec 17 then U.S. CGT will not apply ( I know I have to also consider UK CGT but I think I understand that part of it).

So If my logic above is correct, I think if I allow the completion to happen after Christmas I think I become liable for U.S. CGT but I am unsure how to work out how much that would be.

I know that there are forex implications of the sale vs purchase price but I am unsure how you apply these.

I've also read that there are forex implications associated with mortgages but I am unsure whether these come into play as I paid off my mortgage before moving to the US.

Can anyone help me work out whether/how much U.S. CGT I might have to pay?

many thanks

Melly

vespucci

The exchange rate was high in 2006- suppose you bought when it was $1.80 and you sell when it is $1.30. Then in dollar terms you bought for 369,000 x 1.80 = $664,200, and sold for 410,000 x 1.30 = $533,000. So you lost $664,200 - $533,000 = $131,200, plus expenses. So you don't have to pay any US CGT.

Pulaski

Agreed, the exchange rate was above $1.72 for the entire year, most of it over $1.80, and some of it over $1.90, peaking at $1.98, so a dollar loss for CGT purposes is certain no matter what date you purchased it in 2006.

Cook_County

I think from a US perspective there is a non-deductible personal loss. If the property was rented out there is still tax on recapture of depreciation. In the UK a CGT return will be required within 30 days of sale.

Blanca

How does it work if there is still mortgage to be paid off?

Pulaski

Then there may be a gain on the redemption of the mortgage if the Pound has fallen in value against US$ since you originally took out the mortgage. Here is an example that I posted previously:
A loss on sale of your home is generally considered to be non-deductible, as per Cook County above, so I am highly sceptical that a loss on sale of your home could be set against a gain on the mortgage even though the home and the mortgage are inextricably linked, but I could believe that some tax professionals might disagree with me.