ArbInv

Hi All

I have been a resident in the US since 2008 and am now a dual citizen. I own a rental property in the UK which I am considering selling. The property has been rented since around 2005 and owned since around 1997. I have been paying taxes on related rental income in the US and depreciating the asset on my tax returns since my first tax return. At this point I do not need specific tax advice but just wondered what are some of the issues which I might want to consider if I sell the property and wish to bring the proceeds to the US. I understand that there would be some kind of recapture of depreciation and capital gains tax. If the property was in the US I understand that I could roll the proceeds into either another property investment or a suitable fund (i.e. 1031 Exchange) and could possibly avoid some of these taxes.

I presume there are folks here who have undertaken such a transaction and I would be interested to see how this was handled. Also if you found a way to put this money into an IRA / ROth IRA>

Many Thanks

Arb

Glasgow Girl

There will be US and UK capital gains taxes to pay, plus if there is a mortgage then financial currency gains on redeeming the mortgage may apply. This thread covers most of that. Brit based in the US selling rental property in the UK. The depreciation that you have taken to date (or should have taken whether you did or not) will be taxed as ordinary income but capped at 25%. All other capital gains will be taxed at normal capital gains rates. If you are a US person for tax purposes there is no way around paying these taxes. Any unrealized losses will help to reduce the capital gains and recapture taxes but will be applied to the capital gains first, and the recapture tax second (if there are any left) which may or may not work out to be beneficial depending upon what tax bracket you are in.

A 1031 exchange has to be between properties within the US, or between properties overseas, you cannot 1031 an overseas property into a US property, or vice versa. In any case the 1031 simply defers taxes versus eliminating them and UK tax would still apply. There is no way to put the proceeds into a Roth or IRA other than using the proceeds to fund Roth or IRA contributions under the normal limitations, which limit the amounts based upon your earned income.

SueClay

We are in a similar situation. We are dual UK/US citizens and have a rental property in the UK that we would like to sell. We have rented it since 1994 and have done all the necessary reporting and taxes etc over the years. We had the recommended revaluation in 2015. My question is regarding the US CGT calculation. Can we use the reassessed value @ 2015 as the cost basis when working out the CGT on our US tax return or do we need to use the amount @ 1994?

Glasgow Girl

The cost basis will be whatever you paid for it when purchased plus any capital improvements less any depreciation taken (or should have been taken). The depreciation on a foreign property is 30 years if rented after 2018 and 40 years if rented before that. If you have rented it out since 1994 (and been a US tax payer all that time) the depreciation will be close to 50% of the purchase price (less the land value). Land is typically 20 -25% of the property fair market value of the overall property.

trirod

To add to Glasgow Girl’s excellent summary, just be aware that you will be translating into US dollars at the time of each respective transaction. So your cost basis will be the purchase price in GBP translated into USD at the exchange rate in effect on the date of purchase. Your sale proceeds will likewise be your proceeds in GBP translated at the ex rate on the date of sale. You don’t look at your gain in sterling and then translate into dollars. This can make a significant difference (positively or negatively).

SueClay

Thanks for this - it’s a minefield and we’re just starting to try and understand everything. Appreciate it!