Michael

So follow what Pulaski said. If there is an annual loss on rental income, that will reduce taxes owed to the IRS since up to a certain limit, the loss can be deducted from your US income.

However be careful if you intend to remain in the US permanently (green car or naturalize) and you later sell that property. If you sell it now or in the near future and it was your primary residence for 2 of the past 5 years, there is a $500K exclusion from US taxes on any capital gains but if it converts to a rental (not your primary residence for at least 2 of the previous 5 years), the gain on the sale is taxed as capital gains.

RonGsy

We hope to keep it and rent it out. If we sell it and decide to move back one day then it'd be nigh on impossible for us to buy again in our home island as my wife no longer works.

Michael

That is what many do. However some people don't understand the tax implications and rent out their property and three or four years later, decide that they want to live in the US permanently or long term and need the money to purchase a home in the US so they sell the property and get hit with a large tax bill from the IRS. So if it has been your primary residence for at least the past two years and you have been living in the US for two years, it is time to start thinking about what you plan to do in the future since you still have time to get the exclusion. Once you hit the three year mark, you can still sell it but there will likely be tax implications.

RonGsy

We won't be moving until October if the H1-B goes through, and even then we've got 2 years to decide if we want to sell it or not, which should be plenty of time.

Michael

Just trying to get you to think about it. There was a wife of someone that was in the US on a company transfer so she could work and she decided to work for H&R Block (tax preparation service) so she went through their training course. After being in the US for 3 years, they decided to sell their home in the UK to purchase a home in the US but she didn't realize about the exclusion. After they sold the home, I asked her if she was awake during the day they talked about the exclusion during her training course.

RonGsy

Ouch! Well, we'll definitely be aware of it now! We don't really know what our plan is, we may have a work license, we'll move there and just see how it goes. We might want to move back home after our term is up, we may not. If we're certain not then we can sell before the 2 years are up

Michael

It is actually 3 years since the home had to be your primary residence for 2 of the previous 5 years. I said start thinking about it after 2 years since that will give you another year to sell if you decide to remain long term.

RonGsy

OK, perhaps I'm mis-reading you. We've owned the home (in Guernsey) for almost 3 years now. 3 years since the home (our home) had to be your primary residence (it was our primary residence almost 3 years ago). This is why I should always get myself a lawyer. Some people get law speak, others (like me) don't

Michael

Very simply put. If you lived in the home for the 2 years prior to moving, you have three more years to sell it before you would lose the exclusion because you lived in the home 2 of the precious 5 years before it was sold.

However if you started renting out the home one year before you moved, you then would only have two more years to sell the home to get the exclusion.

RonGsy

Gotcha! Thanks *very* much for the information. The only real fun is filling out the tax forms in America, they'll probably think I have some money because I own a home in a tax haven

Pulaski

Also your bank in the US will think you're a money launderer.

Disenchanted

In reading about H1-B visa's and conversion to Res Alien or Citizenship it may take more time than you think as there is a huge backlog and there is the possibility that you will be forced to exit the USA, in which case keeping your home would be advantageous.

On the rental side, I would have thought that it would be covered by filing either a Sched C as it's a business or Sched E for supplemental income and loss, it depends on what kind of services you provide your tenants.

Greg.

chopper40

Just to chime in, sounds like filing "Schedule E for supplemental income and loss" is the way to go. Bear in mind you have to take a depreciation over 40 years on the base cost of your house (purchase price + plus all closing costs + and major improvements, expressed in US dollars). This drastically reduces your reported rental "profit" to the IRS. Bear in mind this depreciation is not optional , you must include it. The depreciation amount is "recaptured" when you sell at a future date. If you dont include the depreciated amount on your yearly IRS tax returns, the IRS will still tax you on what you should have taken when you sell.

The requirement to have lived in the property for 2 years out of last five in order to avoid paying Capital Gains Tax is a real kick in the gonads if you made a sizeable capital gain due to price appreciation before moving to USA. This has happened to me. I'm probably going to just rent out my UK house forever and leave it to my kids to reset the cost basis.