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Mortgage repayment query

Mortgage repayment query

Old Nov 25th 2017, 7:29 pm
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Default Mortgage repayment query

Hello, I didn't want to derail Sarg75's thread so I have made a new thread for my query relating to this:


Be aware that US tax rules can also create a substantial capital gain on the repayment of the mortgage in addition to the gain on the home. This typically happens when your mortgage was taken out when the GBP/USD exchange rate was higher than when you sell, in other words it catches almost everyone (who has emmigrated from the UK to the US, and still owns a home there) at the moment.

Also, capital gains are calculated based on when you bought your home and took out your mortgage, not when you arrived in the US.

My current plans are: finish work and get my redundancy on 15/12, pay off my UK mortgage on 16/12, fly to the US and enter as an LPR on 17/12. My house will hopefully sell sometime in the spring of 2018.


I've been assuming that if my mortgage is paid off before I become an LPR that I wouldn't be liable for any tax on the FOREX difference - can anyone confirm if this assumption is correct?


Thanks
melly
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Old Nov 25th 2017, 9:49 pm
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Default Re: Mortgage repayment query

Originally Posted by melusine View Post

My current plans are: finish work and get my redundancy on 15/12, pay off my UK mortgage on 16/12, fly to the US and enter as an LPR on 17/12. My house will hopefully sell sometime in the spring of 2018.


Thanks
melly
As a side note - the US convention on numerical represent of dates is opposite of European convention. It is Month then day.

For example, the destruction of the World Trade Center is referred to as "9-11."
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Old Nov 26th 2017, 1:54 pm
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Default Re: Mortgage repayment query

Have you (ever) elected with your USC husband to file joint US income tax returns?
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Old Nov 26th 2017, 2:42 pm
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Default Re: Mortgage repayment query

Hello, I have never filed US taxes previously. Since we were married 14 years ago, my husband (USC) has always filed his own taxes as required as a USC - but as 'married, filing separately'.


Our house in the UK is in my name alone.


I have so far assumed that: a) I will need to file a US tax return as a new LPR to cover the period 17 Dec to 31 Dec b) that I would be best to file separately from my husband. My assumptions could be wrong!


melly
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Old Nov 26th 2017, 4:29 pm
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Default Re: Mortgage repayment query

I think you are right...but I have a nagging problem with the anticipatory assignment of income doctrine. Cannot you defer activating the green card (and entering the United States) until New Years day?
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Old Nov 26th 2017, 5:54 pm
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Default Re: Mortgage repayment query

Thanks for your reply.
No, delay is not an option - my flight is already booked and we want to be together for Christmas.


I read the Wikipedia entry on the doctrine you mentioned. I'm not sure I am much the wiser. Am I right that it implies that regardless of how you file your taxes (separately or jointly), if you have a property that you jointly live in, any income arising from that property is jointly applicable to all parties that live there regardless of who actually owns the property? If so, in our case, my parents and our grown kids have also been living in our UK property with us so presumably they would also have some sort of liability (and my parents and older children are not immigrating so I don't see how that would work at all)


It seems to me if that principle does apply, it would apply equally whenever the mortgage repayment took place - whether that was this year, next year or 3 years ago? I suppose the only difference would be that I wouldn't have to submit a US tax return at all for 2017 if I didn't enter until after Jan 1st so it might be less visible.


To that last point, I am unclear on whether, when I fill in my US 2017 tax return, I will need to detail any financial transactions that took place before I become an LPR (which would include the mortgage repayment). I am assuming (possibly incorrectly) that I won't need to do this as I can't really see how what I did before becoming an LPR is any business of the IRS or that they could effectively reach back into my pre-LPR financial affairs ( except if they were able to do that just because my husband is a USC). Just to be on the safer side anyway, I decided to pay off the mortgage today rather than the day before I fly to leave a bigger gap between that payment and my US entry date.


Not sure if it makes a difference. but the UK house and mortgage has always been in my sole name dating back to 2006 when I bought it - we haven't recently shuffled anything around with the intention of improving our tax position.


So overall, this all sounds rather complicated! I can see the need for some sort of tax consultation in my near future in order to make sure I don't inadvertently put myself in a difficult position.
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Old Nov 26th 2017, 6:05 pm
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Default Re: Mortgage repayment query

Maybe try consult with a CPA who has experience of dealing with new immigrants?
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Old Nov 26th 2017, 11:38 pm
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Default Re: Mortgage repayment query

Originally Posted by melusine View Post
Hello, I have never filed US taxes previously. Since we were married 14 years ago, my husband (USC) has always filed his own taxes as required as a USC - but as 'married, filing separately'.


Our house in the UK is in my name alone.


I have so far assumed that: a) I will need to file a US tax return as a new LPR to cover the period 17 Dec to 31 Dec b) that I would be best to file separately from my husband. My assumptions could be wrong!


melly
I would suggest consulting with a CPA (US equivalent of Chartered Accountant) or a tax lawyer conversant in the issues. I don't know the answers but the issues I can think of would scare me if I personally had the situation.

Also, there may be issues of STATE taxation
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Old Nov 27th 2017, 11:52 pm
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Default Re: Mortgage repayment query

Originally Posted by S Folinsky View Post
I would suggest consulting with a CPA (US equivalent of Chartered Accountant) or a tax lawyer conversant in the issues. I don't know the answers but the issues I can think of would scare me if I personally had the situation.

Also, there may be issues of STATE taxation
Yes consulting with a CPA is definitely recommended, though if someone LPR for just 14 days ( did I understand that right ?) in a year, and mortgage repaid before having LPR status, I am unsure why any capital gains tax would be due in USA from exchange rate fluctuations on a property bought before becoming a LPR and paid before becoming a LPR.
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Old Nov 30th 2017, 3:07 am
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Default Re: Mortgage repayment query

Originally Posted by melusine View Post
Thanks for your reply.
No, delay is not an option - my flight is already booked and we want to be together for Christmas. .....

It seems to me if that principle does apply, it would apply equally whenever the mortgage repayment took place - whether that was this year, next year or 3 years ago? I suppose the only difference would be that I wouldn't have to submit a US tax return at all for 2017 if I didn't enter until after Jan 1st so it might be less visible. .....
If the numbers are big enough to be of a concern, then by the time you've paid for a few hours of tax accountant or lawyer's time, you might as well enter the US on the VWP (assuming you are eligible, and there is enough validity left on your visa to delay until January), then take a short trip in the New Year, perhaps just to Canada or Mexico and active your green card on the way back into the US at that time. ..... At least that way you'd be fairly certain that the loan had been paid off and the dust had settled and you had moved into another tax year before activating your green card.

Last edited by Pulaski; Nov 30th 2017 at 3:10 am.
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