captainsensible

And yes, I have tried searching but there are some odd circumstances.

1. I moved here in August 2012, so I do not pass the 'substantial presence' test for tax residency purposes (for 2012 anyway). I am, however, married to a USC (since January 2012) so we can elect to file jointly for the whole year. Therefore, what information from the UK do I need to provide? i.e. I own a house there that I have rented out since October - do I need to provide evidence of rent payments received? And do I need to submit my last P60? It got lost in the move and my employer doesn't have a copy although they supplied me with an earnings statement for the 2011/12 tax year.

2. My wife's father has completed her tax return for her, for many years and it has come to light that he has never declared the rental income on the property she owns and lets out, nor has he submitted any mortgage interest, or other taxable deductions, for the same property. I understand that she should refile for 2010 & 2011 as well as 2012, but is it strictly necessary? A new tenant rented her house from July last year, with a new tenancy agreement - can we simplify things and only declare the rental income since then?

3. For obvious reasons, I do not intend to have my father in law prepare our joint tax return - who best should we go to? I have ex-pat colleagues who use a particular branch of Liberty who, because they go there, are now a little more used to dealing with ex-pats - is this a good option considering the circumstances?

Thanks!

nun

If you elect to file jointly you will be treated as a US resident for the entire tax year and will be liable for US tax on your worldwide income. You do not need to provide evidence of your rental income on your 1040, but it does need to be included along with any deductions. If you get audited you will need to provide documentray proof of the income and deductions. The IRS has no idea what a P60 is, but you need to use the information on it to fill out your 1040 and claim foreign tax credits. Remember you will have a UK tax liability on your UK rental income.

No, you need to file 1040X ammended returns and pay any tax due on the income.....there will interest due too. The IRS can audit you back 3 years and can collect an outstanding tax bill back 10 years. You need to work out your taxes and decide how to proceed. I'd get some professional advice.

This could get complicated and most US tax professionals are not qualified to deal with UK and crossborder taxation. If you want to be sure of getting everything right you need a firm that has dual qualified professionals.

http://www.britishamericantax.com

http://www.americantaxreturns.co.uk

or try Pete Newton in the US

http://www.britishexpatstax.com/

Pulaski

Depending on the size of the mortgage, whether she manages the property herself (this has favorable tax treatments for tax losses Note: house can generate positive cash flows and be considered "profitable" by the owner and still create tax losses) whether there were any other deductible expenses (depreciation on newer houses, and/or those in high cost locations can be quite considerable) and of course the amount of the rent, there could very easily be refunds due for overpayment of taxes.

nun

It is possible for the rental to produce a net loss after depreciation and expenses are taken into account, but in my experience there's usually some taxable income. I have a rental property and I only pay tax on 50% of the rent after all the tax deductions are taken into account. But even if there is a net loss the 1040X need to be done to get the refund. FYI you can only get a refund 3 years in arrears.

captainsensible

As far as I am aware, my wifes rental has never been profitable as her mortgage payment has always been higher than the rental income - I assume though that this might be irrelevant?

jeffreyhy

It's relevant - at least the portion of the mortgage payment that went to interest and property taxes (usually paid through the mortgage handler) is relevant.

I rented my house for a couple of years when I moved to another state for a new job and couldn't sell the house while the real estate market was crashing. I couldn't get enough in rent to fully cover the mortgage, and between interest, taxes, insurance, depreciation, and a few other minor expenses I got a healthy tax deduction. Still lost money overall, though, until I was able to make a sale.

Regards, JEff

captainsensible

Ok, JEff, thanks

Hopefully, the returns will outweigh the potential costs!

nun

The mortgage payment isn't the critical thing, it's the interest and things like real estate taxes and depreciation that you can deduct from the rental income

captainsensible

Do I also declare my rental income from the UK, along with any corresponding mortgage interest & depreciation for a UK property?

jeffreyhy

If you're a US taxpayer, you declare all of your income no matter where you are and no matter where the income is coming from. Then you exclude whatever income you're allowed to exclude.

Regards, JEff

nun

If you are doing a joint return with your US spouse you are treated as being a US resident for the whole tax year so your worldwide income is US taxable. That includes income on the P60, the rental minus and deductions, any ISA interest, any UK bank interest and investment gains......any gain in endowment policies....everything. Some of the above will have been taxed in the UK and you will need to take tax credits on your US taxes.

As a US resident the US has the primary taxation authority on your income and you will have to use the tax treaty to work out what proportion of tax to pay the US and the UK when there are cross border circumstances, this will be applicable to your UK rental income as it is UK souce.

JAJ

Many, if not most, tax practitioner CPAs are perfectly competent to understand how to include foreign income on a U.S. tax return and claim foreign tax credits as necessary.

While they may not be qualified to prepare a U.K. tax return, most people can either do this themselves or find a U.K. tax person (who in turn can talk to a U.S. practitioner). And often, because of the personal allowance, the U.K. tax liability is zero which avoids a lot of the foreign tax credit complications.

Restricting your choice to the few dual qualified tax practitioners out there is likely going to mean a long search and/or unnecessarily high fees.

nun

I agree with you, the problem is often not one of competence, but one of perspective as a US CPA will be focused on the US tax aspects. If there is UK source income the treaty has to be applied. UK personal allowances etc might well make the UK taxable income zero, but in the OP's situation I think it would be best to use someone like Pete Newton who won't have to do research to come up to speed rather than trying to coordinate two tax professionals in different countries.

MsElui

when i inquired with Pete recently he told me he was at capacity right now and wasnt accepting any more clients til later in the year.

JAJ

Problem is that dual-qualified professionals like Pete Newton are (by all accounts) in short supply. If U.K. tax affairs are simple - rental properties, bank interest, etc. - then there is absolutely no need for a dual qualified tax advisor.

A competent CPA should be very much able to interpret a tax treaty and apply it if needed (and it is a question of if, as most of the time the treaty provisions do not need to be invoked).