guyintheus

I'm currently in the US on a non-immigrant visa (arrived mid 2017). I filed taxes as a non-resident in 2018. It's looking likely that my status will switch to H1B on 1 October 2019 (although I will not become US tax resident until 2020 because I won't meet the substantial presence test in 2019). If the H1B comes through, I intend to stay in the USA for the duration of my H1B (which might be as long as 6 years).

Problem is - I have a UK property which I am currently leasing (though I lived in it for 4.5 years before I moved to the US, and it was my sole private residence for that period).

If I sell it during 2019 while I am non-US tax resident, I presume that I will not have to report the sale or pay US taxes on any gain? (Since I bought it, it's gained in value by almost 200k).

If I hold on to it, and want to sell it during a tax year in which I am US tax resident, what would be the US tax treatment for the capital gain? I understand that I will not be liable for UK capital gains tax as it was my primary UK residence (though I'm not certain on this point) - is there a similar treatment in the US? If not, I presume that it would be treated as a capital gain (subject to trying to find as many deductions as I can) and I'd be liable to pay tax on the gain at X%?

A further complication is that I'm on a fixed rate mortgage which doesn't finish until 2020, so any sale in 2019 would be subject to an early repayment charge. Just trying to figure out the cost/benefit calculation.

In the alternative, I could just hold on to it. But I might want the equity if I'm staying in the US long term.

Advice would be greatly appreciated!

Hotscot

Hold on...how are you here? Which visa?

If you become a US tax resident simply report your gain in Turbo Tax. It will guide you a year from now.

If there's an early repayment charge you can also enter this.

christmasoompa

Pulaski

British CGT may be due since you moved out of it, but only on the apportioned gain after you moved out. "Working overseas" may further extend the exempt period for British CGT purposes.

US CGT is brutal - you will be taxed on the gain since you owned it (if you haven't lived in it for 4½ years you are already disqualified from the US CGT exemption on sale of your home), even though you were not subject to the US tax regime at the time you bought it, and even though most of the gain may have occurred during years when you were not subject to the US tax regime either. Worse, you may also be subject to tax on a possible notional FX gain on the early redemption of your mortgage, depending on the relative exchange rates at the time you took out your mortgage and the time you redeemed it.

In short, if you are anticipating staying in the US long term, or permanently and/or in due course taking US citizenship, then yes, sell now before you get tangled in the IRS's web.

guyintheus

Yes I'm here on a non-immigrant visa. First line in my post ;-)

My question isnt really answered by "just declare it in Turbo Tax". My question is how to minimize my tax liability. But thanks for the reply anyway.

guyintheus

Re: the bolded part - I lived in it for 4.5 years before I moved to the states. So I lived in it from March 2013 to August 2017 - then I lived in the US from August 2017 to now (and leased it).

I've just found something on the IRS website that there's an exemption for a gain of up to $250k if you sell a private residence that you lived in for 2 years out of the last 5. So as long as I sell before August 2020, I guess I might be able to benefit from that exemption, even if I was a US tax resident in 2020.

That notional FX gain is outrageous!!

Re: "apportioned gain" for UK CGT - I actually don't think it's gone up very much in the last few years since I've been in the US. So I'm actually not too worried about the UK side. More the US.

I think I should probably speak to a UK/US tax person pretty quickly to try and sort this out...

guyintheus

Apologies - forgot to say thanks for replying to this!

My main question is: If I sell it during 2019 while I am non-US tax resident, I presume that I will not have to report the sale or pay US taxes on any gain? The US can't have any fingers on my non-US capital gains if I'm not US tax resident, right?

guyintheus

I also have a UK pension pot with about 60k in it, but having done some reading on here, I'm assuming that it's best just left there without me touching it.

Rete

There are many non-immigrant visas. Since you filed US taxes for the year 2018, it is assumed that you are living and possibly working here on a non-immigration visa.

You can declare yourself a resident for tax purposes if it is advantageous to you to do so.

Pulaski

…. Agreed, but that really doesn't leave a huge margin for error, if it doesn't sell quickly. My home in SW London was in an area where there was steady demand and on offer on the first day it was listed, and completion 5-6 weeks later, was the norm, and that was how I bought. When I came to sell I ended up with two "complicated' offers, one after the other (neither ended up being able to close the deal) and from listing to completion took over eight months! Along the way I had fire and replace my estate agent.

It's totally logical, but only if you understand the maths behind the calculation. Personally I think charging the entire gain when you weren't subject to US taxes for part of the period is more egregious.
The apportionment is straight line irrespective of when the gain occurred. For example if you bought a house in January 2009 and moved in June 2012 and it doubled in price by January 2014 (at which point, 18 months after you moved out, it was no longer exempt from CGT), and then you sold it in January 2019, but there was no increased in value at all after January 2014, you would still pay CGT on half the gain because it is apportioned straight line between January 2009 and January 2019.
You're welcome.
Correct, but if you're already in the US then you are walking a fine line. I would be looking for a tax attorney to advise given the amount of tax potentially at stake, not to mention the IRS penalties if you get it wrong.

guyintheus

Thanks Pulaski!

I suppose I could put it up for sale in late 2019, with an instruction to my estate agent to only close during 2020 (once my early repayment charge on my mortgage has run clear). Plus it would be great to be able to keep it tenanted during the sale period (I currently have a lease with them running to mid-2020, but either of us can terminate on 2 months notice).

The sweet spot would be to try and sell AFTER the ERC has fallen away in early Jan 2020, and BEFORE the exemption runs out in August 2020.

If my H1B gets approved (I've been picked in the lottery but won't have a decision til early June), tax attorney it is...

And thanks for letting me know about the straight line apportionment - I should have assumed they'd do it that way. I'm still hoping that I'm exempt from UK CGT though. Will need to look into that too.

Thanks again! What a palava!

guyintheus

Hi Rete, yes that is correct, but I filed as a non-resident. I didn't think the type of non-immigrant visa would really matter for the purposes of this thread and my question.

I don't think declaring early would be advantageous, but good to know that the option is there. Thanks very much!

Pulaski

That sounds like a good plan, I hope it works out for you.
You're welcome!
Welcome to life under the thumb of the IRS.

guyintheus

If I decided not to sell it and keep renting it - for how long would I be subject to the threat of CGT by the IRS (even after I left the US)? Presumably - for as long as I am a US tax resident?

Let's say I leave the USA permanently in mid-2024 - does that mean I wouldn't be able to sell it until 1 Jan 2025 without incurring potential IRS liability?

And if I don't leave - and I move to a green card - would it mean that I could never sell it without paying? Might 2019 (or at least up to August 2020) be my only window to sell, tax free?

Sorry - another question: how would I go about moving 200k pounds into dollars? I've used Transferwise for small transfers but it seems to limit me to 2k per day.

Hotscot

[QUOTE=guyintheus;12674331]Yes I'm here on a non-immigrant visa. First line in my post ;-)QUOTE]

Which one?
Do you know//