FatFrank

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.

Jscl

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.

FatFrank

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

Cape Blue

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.

Cook_County

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.

Bendex

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)

nun

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

sergeyvo

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.

sergeyvo

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....

jmood

If it was originally your primary residence, can you still report/calculate depreciation?

JAJ

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.

jmood

THis is for the UK or US?

JAJ

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.