Britlec1992

Ok,

So looking to move to Texas within the year as previously mentioned.

We are currently on the market and trying to sell our property which we own in the UK.

When sold, we will be depositing the money into our bank and moving into rented until we move.

When I mentioned this before there was some comments about tax for my wife as a USC selling a UK property?? I am confused by this so was wondering if it could be explained further.

My wife has contacted HR block who do her taxes, and they have said that when we sell and the money is in our account.... if we transfer it to the states we would be exempt from tax on it as it's from a home we have been living in???


We have only ended up making about 10k gbp ontop of what we bought for ... thanks brexit!

So we would be hopefully getting back the 20k we deposited in the home plus 10 we have made.


Secondly,

I obviously wont have a credit history in the u.s , but my wife did have a phone and a car loan In the states before we left 6 years ago, which got settled.

My question is will that credit file still be on record?

Or will it have been lost . So we will still have to start from scratch ?


Thanks for your help

Wirksworth

HI,
depending on your exact situation a gain of either $250K or $500K is tax free. The sales gain is the cost in $ when you bought the house - the $ sales price after allowable costs , which with Brexit the exchange rate is in your favour. There are also a range of potential deductions to reduce the gain if you have spent money improving the house. It is important to look at what the $ gain is if any on paying off your mortgage given the weak £. As an example say you borrowed £100 when the rate was $1.65 then you have borrowed $165K but if you repay now it would be $127K so there is a $ gain. there is a helpful IRS guide at https://www.irs.gov/pub/irs-pdf/p523.pdf

Britlec1992

Bought place for 190k with 19k deposit


Selling for 200k with remaining mortgage of 165000 gbp


I think I understand where you're coming from?


Thanks

Wirksworth

Hi, I cant see you will have a tax issue as the lowest exempt gain set by the IRS if you sell your house is $250K for a single person ($500K for a couple who have both lived in the house) given your mortgage size and £ gain you will not have any issue from the IRS as far as can see . When I read the guidance you do not need to report a sale if the gain on a sale is less than the allowance

civilservant

7 years for account reporting on US credit reports. If it's beyond that, she won't have a score at all and will start from scratch.

jammiie

It's the foreign mortgage gain that catches most people out.

This is the best explanation of it that I've come across.

https://www.taxadvisorypartnership.c...nge-rate-gain/

If you took out your mortgage pre-Brexit referendum when the GBP>USD forex rate was 1.6+ then there is a good chance that you could owe a fairly significant amount of tax to the IRS upon your repayment of the mortgage now at ~1.2.

Cook_County

If you are speaking with H & R Block they will not understand the mortgage gain. You really need to calculate the possible US tax cost of this because of the sharp fall in the value of the Pound. This is pretty standard US pre-immigration tax planning advice.

Wirksworth

jammiie

Foreign Mortgage Gain under Section 988 does not fall under your Capital Gains allowance and is instead treated like income.

I went through all of this last year with Deloitte, they told me there is no way out of it. Luckily for me I refinanced in the UK just after the Brexit vote so my gain was minimal (~$4k) which I still ended up paying 28% of in tax.

I'd argue that based on your figures, OP would be looking at a $30-40k tax bill should he sell his UK home.

Wirksworth

[QUOTE=Wirksworth;12620001]

Britlec1992

How on earth could I be taxed 30 to 40k if I've only invested 20k into property and would walk away from it with only 30k if I'm lucky?!?! This somehow doesn't seem right? I'm saying you guys arent right... I'm just saying it seems that wouldn't make any feasible sense seeing as I haven't gained anything other than the 10k.


So confused

civilservant

Because of the change in the exchange rate.

Wirksworth

I have learned when moving to the USA that the IRS Tax frameworks means there are lots of pitfalls not least being everything is $ based and uses the exchange rate at the time of a transaction. Jammilie has used Deloitte, who are a large international firm and so I would trust their advice. It may pay you to look into the potential to remortgage before you sell to rebase your $ mortgage value but this is getting well outside my knowledge . Hopefully someone who has remortgaged before the sale will comment.

Britlec1992

Ok so scrambling to find out more about this.... but seen some posts about remortgaging.... we just remortgaged in January 2018.... obviously the exchange rate would have been similar to what it is now.... would this make a difference!?

chawkins99

[QUOTE=Wirksworth;12620092] Trying to get my head around this but thought it should be the other way around.

If they bought when the rate was 2$/£ and sold at $1.28/£, surely that would be a loss not a gain.

Buy at $342k. Sell at $211k. That's a LOSS of $131k not a gain.

Also checked the historic exchange rate. If they bought in 2012 when they moved, the rate fluctuated between $1.53 & $1.63. Would make the numbers more palatable.