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Rental income as 'Non resident landlord' and US taxes

Rental income as 'Non resident landlord' and US taxes

Old Feb 6th 2014, 4:21 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Jscl View Post
This carries on year after year - passing on any passive activity loss carryover - until the carryover is used up or you sell the house. If you sell then any remaining carryover losses can used to reduce a gain on the sale of the house (if there is one - if there isn't I don't know what happens).
Jscl,
Which part in particular are you warning us about? Aren't you agreeing that the year over year accrued "unallowed loss" (as it is called on my US return schedule E) on a UK rental whilst you are US resident can be used as an offset for US CGT upon the properties sale?

Apologies if I'm missing something.

Last edited by FatFrank; Feb 6th 2014 at 4:25 am.
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Old Feb 6th 2014, 4:29 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

I was agreeing with that... my thought on reading the thread was that people were saying the initial tax preparer was incorrect, and I was trying to clarify what the initial tax preparer was saying (which is not incorrect for US properties, however as I mentioned, I don't know if there are special rules for rental property overseas).

Maybe it had already been said! Just was trying to help as it wasn't clear to me.
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Old Feb 6th 2014, 4:33 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Jscl View Post
I was agreeing with that... my thought on reading the thread was that people were saying the initial tax preparer was incorrect, and I was trying to clarify what the initial tax preparer was saying (which is not incorrect for US properties, however as I mentioned, I don't know if there are special rules for rental property overseas).

Maybe it had already been said! Just was trying to help as it wasn't clear to me.
Okay, thanks. As far as I am aware there is no other special calculation treatment for it being a foreign located property apart from that mentioned with exchange rates etc.......I do hope there isn't, but I suppose I will find out soon enough as we are in the process of putting it up for sale right now

Last edited by FatFrank; Feb 6th 2014 at 4:35 am.
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Old Feb 6th 2014, 7:53 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Bendex View Post
Apologies in advance as this is probably a daft question, but the more I research the less I understand...here's our situation :

We jointly own a house in UK and registered with HMRC as non resident landlord, so won't need to pay taxes

After the hike in mortgage fees (under 3 year consent to let), and the deduction of management fees from rental income, we cover £370 per month, so are making a hefty loss - and that doesn't even include any maintenance or repairs
Just to be clear, registering with HMRC using NRL1 does not mean no tax to pay in the UK, it means no 20% tax deducted at source in the UK. You still have to complete a UK tax-return and pay tax if appropriate (i.e. if your profit is above tax-free thresholds).

Your second paragraph would seem to indicate that no UK tax will be payable anyway, BUT note that your taxable profit is not a loss of £370 per month, as it is only the mortgage interest that is deductible and not the repayment part - I suspect your "trading" profit/loss will still be less than the UK circa £10K personal allowance and there will be no tax to pay, but wanted to be clear for anyone else reading this thread.
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Old Feb 7th 2014, 5:43 pm
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Bendex View Post
She said something abut depreciating the land (at 10% of the value of house purchase) and she took the figures for interest paid on the mortgage. Basically said that we had a loss of about $8500 but it didn't give us any USA tax benefit now, but will do against any future tax on the sale of the property. She said we would only benefit from this loss, in tax terms, if we were real estate professionals, which we are not. So my understanding is that if we made money we would be taxed now, but as we made a loss we will maybe get a tax break at some future point in time. Which seems unfair somehow
Land is never depreciable under US law. The building is. You may not have the optimum answer if section 469(j)(7) was ignored because you could have claimed a loss equal to the mortgage interest; but without the passive activity loss limitation rules (if this was your primary residence).

You may wish to file an amended US return.
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Old Feb 7th 2014, 7:20 pm
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Cook_County View Post
Land is never depreciable under US law. The building is. You may not have the optimum answer if section 469(j)(7) was ignored because you could have claimed a loss equal to the mortgage interest; but without the passive activity loss limitation rules (if this was your primary residence).

You may wish to file an amended US return.
How can I check if this is the case? I'm not entirely sure I understand if I'm honest

Looking at the papers we have the interest for our US mortgage is on form 1040 under "Interest you paid", and the interest for the UK house is on another page of the 1040 as an expence under "Income or Loss from rental real estate and royalties"

I can't see anything marked as section 469 (j)(7)
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Old Feb 7th 2014, 8:04 pm
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Bendex View Post
How can I check if this is the case? I'm not entirely sure I understand if I'm honest

Looking at the papers we have the interest for our US mortgage is on form 1040 under "Interest you paid", and the interest for the UK house is on another page of the 1040 as an expence under "Income or Loss from rental real estate and royalties"

I can't see anything marked as section 469 (j)(7)
You can depreciate the cost of the rental property (minus the land) over a number of years. For US property that's over 27.5 years....I think it's 40 years for foreign properties. So if you paid $300k for the rental and the building is worth $200k you will be able to deduct a depreciation expense of $200k/40 = $5k from you taxable income. You can also deduct the other usual expenses as well like mortgage interest, repair costs.....etc
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Old Feb 7th 2014, 9:18 pm
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by nun View Post
You can depreciate the cost of the rental property (minus the land) over a number of years. For US property that's over 27.5 years....I think it's 40 years for foreign properties. So if you paid $300k for the rental and the building is worth $200k you will be able to deduct a depreciation expense of $200k/40 = $5k from you taxable income. You can also deduct the other usual expenses as well like mortgage interest, repair costs.....etc
Is depreciation applied to any rental property, or the house should be new?
If I let a 100yo Victorial house I hardly believe I can rely on depreciation.
There is a question in the form when the house was built - perhaps everything is counted from that date.
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Old Feb 7th 2014, 9:39 pm
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by Bendex View Post
I guess it just seems unfair that we would be taxed if making any money, but there's no relief in making a loss.
You need to report to both HMRC and IRS about it.

HMRC:
1)Don't forget to submit NRL1 form
2)File total income from the property, which is =RENT-expenses like mortgage interest, fees, maintenance expenses, etc... If your partner co-owns the house, everything is divided over 2. For an average house you should stay well within ~7k personal allowance. If you wife has a job in the UK and exceeds this limit - she may pay tax from her part to HRMC.

IRS:
You need to include the overal rental income into your tax return. If your spouse is living in the UK - I'm not sure if you can report only your part to them as in teh UK (but I guess so). Assuming that you can - everything is pretty similar in overal rental income calculation, but in the US you can also deduct depreciation (if applicable).

I don't know if its possible to optimize the situation should you pay to IRS and your spouse to HMRC....
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Old Feb 18th 2014, 1:57 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

If it was originally your primary residence, can you still report/calculate depreciation?
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Old Feb 18th 2014, 1:59 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by jmood View Post
If it was originally your primary residence, can you still report/calculate depreciation?
Yes. In fact, as I understand it, you are expected to claim the depreciation you're entitled to and it will be recaptured at a special tax rate when you sell.
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Old Feb 18th 2014, 2:07 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by JAJ View Post
Yes. In fact, as I understand it, you are expected to claim the depreciation you're entitled to and it will be recaptured at a special tax rate when you sell.
THis is for the UK or US?
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Old Feb 18th 2014, 2:15 am
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Default Re: Rental income as 'Non resident landlord' and US taxes

Originally Posted by jmood View Post
THis is for the UK or US?
United States.

As far as I know (open to correction), you cannot normally depreciate a property for U.K. tax purposes. Although usually - due to the personal allowance, there's normally no U.K. tax due regardless. Unless you have multiple properties or special circumstances.

Rental property depreciation is one of the areas where U.S. and U.K. tax laws are quite different.
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