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Tax implications for buying a House in USA

Tax implications for buying a House in USA

Old Jun 27th 2010, 11:49 pm
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Smile Tax implications for buying a House in USA

Can anyone gove me some advice. We have a house in the UK which was our main residence before we moved over here last year. We currently rent out our UK House, and are thinking of buying a house here ( we are currently renting which is as much as a mortgage - so we thought it would make sense to buy). Can anyone tell me what our UK and US tax implications will be. We have just got our Green cards - does this make any difference?

If we sell our house in the UK at a later date will we be hit with capital gains tax - even though we lived in it for 7 years before coming here?

If we keep the UK house, and then sell the USA house in years to come - will we have to pay tax in the USA?

Any advice will be appreciated

Thank you
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Old Jun 28th 2010, 1:01 am
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Default Re: Tax implications for buying a House in USA

im no accountant - but i was told that you can claim your mortgage interest back on your US tax return from your main residence. If you are renting in the US - then you can claim the interest from the UK mortgage. Once you buy in the US - that becomes the main residence and you stop claiming on the UK mortgage and start claiming on the US mortgage interest.

We actually changed our UK mortgage over to interest only before we came over to take advantage of that. We have no bought in the US so it no longer helps us. We do however claim a large amount back in interest paid in the home we own here.
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Old Jun 28th 2010, 1:04 am
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Default Re: Tax implications for buying a House in USA

The mortgage interest is a deduction against rental income on your US and UK tax.

You potentially have a CGT issue depending how long you rent it out and whether you gain a profit when you sell.
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Old Jun 28th 2010, 1:35 am
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Default Re: Tax implications for buying a House in USA

Boiler is correct to highlight a warning about CGT.

As I recall you can only claim exemption from CGT on your 'principal private residence'. You can sometimes nominate which of your homes that is but you will probably be liable for CGT on any other properties you own.
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Old Jun 28th 2010, 7:37 am
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Default Re: Tax implications for buying a House in USA

If you sell a home that you lived in for 2 of the previous 5 years, there is a $500,000 ($250,000 for a single person) exemption against capital gains. The exemption is available even if you no longer live in the house and purchased another primary residence.

http://www.bankrate.com/finance/real...-owners-1.aspx
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Old Jun 28th 2010, 12:01 pm
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Default Re: Tax implications for buying a House in USA

Thank you so much - my head is literally spinning trying to work it all out!
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Old Jun 28th 2010, 6:47 pm
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Default Re: Tax implications for buying a House in USA

Hi there

In a similar position to yourself...

We are about to rent out our UK residence and have just bought a property in VA. With regards to the UK property we have had it valued just before renting out......in this way we will only pay CGT on the INCREASE in value when/if we sell the UK property. E.g. if it is valued at 400,000 GBP now and we sell for 430,000 GBP we will only be liable to pay CGT on 30,000 GBP
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Old Jun 28th 2010, 7:57 pm
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Default Re: Tax implications for buying a House in USA

Originally Posted by washsaint View Post
We are about to rent out our UK residence and have just bought a property in VA. With regards to the UK property we have had it valued just before renting out......in this way we will only pay CGT on the INCREASE in value when/if we sell the UK property. E.g. if it is valued at 400,000 GBP now and we sell for 430,000 GBP we will only be liable to pay CGT on 30,000 GBP
I don't think that will help you with any US capital gains tax liability though, assuming that when you sell you fail the "lived in for two of the last five years" test and your tax status is such that the US taxes you on your worldwide income.
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Old Jun 28th 2010, 8:34 pm
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Default Re: Tax implications for buying a House in USA

Capital Gains taxes will only be paid on any GAIN, never the whole cost, so like Washsaint said, if it was bought at $400K and sold at $430K, if you're taxed at all, you'd only be taxed on the gain of $30K.

If both countries do tax you then you would be able to get a credit on your US taxes for taxes you paid in the UK.

You'll want to remember your rental income (minus allowed expenses) is taxable in the US too, seeing as you're now a resident for tax purposes.
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Old Jun 28th 2010, 8:42 pm
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Default Re: Tax implications for buying a House in USA

Originally Posted by Jscl View Post
Capital Gains taxes will only be paid on any GAIN, never the whole cost, so like Washsaint said, if it was bought at $400K and sold at $430K, if you're taxed at all, you'd only be taxed on the gain of $30K.
Except that's not what washsaint said... they were referring to the difference in value between when the house was converted into a rental property and when it was sold, not the difference between purchase and sale prices. The former difference isn't interesting when calculating any US capital gain.

Originally Posted by Jscl View Post
If both countries do tax you then you would be able to get a credit on your US taxes for taxes you paid in the UK.
Right, but if the UK gain is calculated differently and is lower, it won't do you much good in the sense that your total capital gains tax liability will still end up being the (possibly higher) US amount.
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Old Jun 28th 2010, 9:53 pm
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Default Re: Tax implications for buying a House in USA

One question I always wondered, is the base value when you bought the property or when you become liable for US taxation.

The later would be more logical. Not that logic has much to do with it.
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Old Jun 28th 2010, 10:27 pm
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Default Re: Tax implications for buying a House in USA

The base value for any capital gains is always the value of the property at purchase/acquisition.

Yep, Giantaxe, I misread the post. When you convert to rental is irrelevant to capital gains on sale.
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Old Jun 28th 2010, 10:29 pm
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Default Re: Tax implications for buying a House in USA

Originally Posted by Jscl View Post
The base value for any capital gains is always the value at purchase/acquisition.

Yep, Giantaxe, I misread the post. When you convert to rental is irrelevant to capital gains on sale.
I know that's true for US capital gains, but what about UK? The implication of washsaint's post seems to be that when a property is converted from a primary residence into a rental property, the value at conversion becomes the cost basis.
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Old Jun 28th 2010, 10:37 pm
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Default Re: Tax implications for buying a House in USA

For the UK that was the legal advice I was given. I was told that we had up to 3 years to sell the property from when we start renting to ensure we only pay CGT on the uplift in value from time of valuation to actual sale value.
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Old Jun 28th 2010, 11:10 pm
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Default Re: Tax implications for buying a House in USA

Originally Posted by washsaint View Post
For the UK that was the legal advice I was given. I was told that we had up to 3 years to sell the property from when we start renting to ensure we only pay CGT on the uplift in value from time of valuation to actual sale value.
have a look at these:
http://britishexpats.com/forum/showthread.php?t=618436 - especially the links on post #2
http://news.bbc.co.uk/2/hi/business/10352406.stm
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