lochdaz-of-blantyre

Hi All,
Well we're just getting used to the idea of us moving to the US.

I've been making some enquiries since accepting the offer such as changing Mortgage to allow us to let the property out, checking car sale values vs. balance of finance etc

Boy did I get a shock!

The old halifax are likely to charge me £500 to make my mortgage lease worthy as well as increase my interest rate.

Then there was the cars. I knew the markets were bad but there is close to £8000 negative equity between the 2 cars (2yr old Audi A6 S-Line and 3 year old Merc CLK).

Has anyone been here before and have good suggestions as to how we mitigate the losses? We've resigned ourselves to having to shell out for some of it and have a decent relocation package from my firm to help but still...it's quite a worry.

Input from you all most welcome.

Daz

P.S. despite this...we still can't wait to move!!!

MsElui

i believe you can claim back mortgage interest on your main home. If you dont plan on buying straight away in the US then there may be some mileage in changing the uk mortgage to an interest only mortgage for a time. Then you should be able to claim more back on the us tax system. If you plan on buying in the US pretty quickly then its not worth the effort as it only works on your main home. nGet good financial advice from someone who knows the US system before you do it.

Our relocation package said it included some recompense for the loss in values of cars etc so not much I can advise on there. It was actually quite difficult for us as we needed the car right up to the last day and literally sold it to a dealer on that day as we hadnt been able to get a buyer before then.

lochdaz-of-blantyre

Indeed I think your right. I have heard that also. I'll email E&Y in the morning to check as that would make a big difference. I think its referenced here...http://www.irs.gov/businesses/small/...=96493,00.html

Thanks for the lead. Anyone else have experience of this?

Daz

Dan725

Only thing you can do with the cars is try to sell them privately. Put them in the trader while you have time on your hands; if they sell quick, get a banger to run about in, and sell/scrap it at the end. If it takes them a while to sell, you can gradually come down on price.

If you leave the cars till the last minute, you'll end up selling them to a dealer and your losses will be the biggest.

Cape Blue

You can claim back a shed-load, it doesn't matter if it is your main home.

Mortgage interest
Insurance
Letting fees
Basically any costs associated with letting the property, including periodic travel to check the property, post, web access to deal with your agent by email and so on..

You will need lettings insurance instead of your normal buildings insurance. Get Ins with legal protection (to cover costs of lawyers to evict tenants) and emergency breakdown coverage (boiler blows up when you are in the US on a Sunday night and tenant/agent calls the most expensive plumber).

Be prepared to look on it as a business - thats what it is, not your old family home. The agents will try and rip you off, for full management service you should not pay more than 12%+vat (14.1%) and should push them for 8-10%.

They should advise you of the NRL1 (overseas landlord tax issue) and the CORGI (gas safety issue) and so on.

The only issue on tax regarding it being your main home (principle private residence) comes when you sell it - if you sell it within 3 years of moving your are OK, after that there is some CGT on the increase in value of the property (don't forget your UK CGT exemption limit).

In the past I did not tell the lender that I was going to let out - didn't see the need to pay the fee and increased rate - just made sure the buildings ins was lettings ins so the downside was protected, there was no increased risk for the lender so they were just trying to gouge me.

MsElui

i was specifically advised that if we bought a home in the us then we could no longer claim mortgage interest in the uk house as the us one would become our main home. Thus any mortgage interest would be claimed from the US home (and that was unlikely to be interest only in any case).

Cape Blue

I am talking about mortgage interest against the profits of the UK home letting business in UK tax terms - i.e. they get a rent of GBP1,000 per month, subtract their 600 mort int, subtract agent fees of 150 (and all the other deductibles)and are left with 250 profit x 12 = GBP3,000 pa, which is less than their UK personal tax allowance so no UK tax.

lochdaz-of-blantyre

Ok ...so let me get this right.

I'll be moving to the US where I'll be renting a furnished home.

I rent out my UK home for £900 a month. My interest only mortgage in the UK for that property will cost me £800 per month plus I'll have to pay 10-12% Management fees, £300 per year for landlord insurance etc.

Are we then saying that I can deduct all of these cost from my tax bill in the US or simply I wouldn't pay any tax in the UK?

I hope its the former as being able to deduct that from my tax bill would be nice!

Daz

MsElui

i believe deduct from us tax bill. Typically would declare all the stuff on the tax return and then get a nice tax refund.

lochdaz-of-blantyre

Sweet! That does make it better...

Thanks
D

AdobePinon

AFAIK, in the US you can only deduct mortgage interest from a principle residence. You can have more than one, but it's hard to argue that you're living in a place that you're renting out to people. Also, remember that deductions are not the same things as credits. That is, you subtract the deduction from your taxable income, not your tax bill.

Edit: OK, I'm not sure what Cape Blue is telling you, so comments deleted.

Cape Blue

You will have a UK tax year like a "personal trader" small business that will either produce a profit or a loss and in this the mortgage interest is UK tax deductible. You will complete a UK self-assessment tax return.

In the US you will also have to enter this data as part of your US tax return. I do not beleive that the mortgage interest will be tax deductible, but any tax already paid in the UK is. In the US however you will be able to take a depreciation charge each year against the value of the property when you bought it - the larger the purchase price the larger the depreciation allowance - the US tax guys have no way of knowing how much you paid for it, so if the current value is higher you may decide to use that as your value for the property.

Find a US tax advisor when you first come over - there are a lot more deductions allowed in the US - some of your moving costs etc might be, the tax when registering your first car etc - keep plenty of reciepts during your early days so when you do get to meet a tax advisor you have plenty of data.

Giantaxe

Some very confusing information on this thread.

Very briefly:

Main Home: Can typically claim mortgage interest and property taxes as itemized deductions.

Rented Home: Can typically offset gross receipts (ie rents) with mortgage interest, property taxes, maintenance, depreciation, property management fees etc in order to determine taxable profit (or loss) of rental business.

If you have a UK tax liability from the rental, you may be able to get a foreign tax credit to offset that liability against some or all of your US tax liability for the rental business.

In US tax parlance: deduction = amount that can be deducted from your income in order to reduce the amount of income that's taxable; credit = dollar for dollar reduction in your actual tax liability. Big difference.

Depending on what state you live in, you may also have a state tax liability.

austin_d_powers

Since this would be a buisness (rental/landlord): You would basically end up paying tax on any profit you made. However from the figures you gave it looks like you will be making a small loss every month (900 - costs). Therefore you can deduct the loss from your taxable income.
i.e. if you made $100,000 yearly taxable income and your yearly loss on the rental property was $1,200 then you would pay tax on $98,800 instead of $100,000.

If tax rate is 30% you would be saving $360.
To be more accurate you are saving $360 tax from your LOSS of $1,200 (it is still a loss).

lochdaz-of-blantyre

Oh...thats not what I thought at all..

I thought I would be able to deduct the total value of my annual interest only mortgage i.e. roughly $20k.

Bummer thats not as good as I thought then. This is very confusing.

D