jwiltsh1

Has anyone had experience of the following scenario...

Moved to the US, shortly there after sold my primary residence in the UK and now have to complete my Us 2007 tax forms. If I report the sale (and profit) of the UK house, will good old Uncle Same try to tax some of the profit I made?

I believe that I don't have to pay Capital Gains Tax in the UK, so should be clear there, but am concerned about the US exposure.

Any advice gratefully received

James
Shivering in Minneapolis.

YankeeDaz

There's a tax treaty in place between the US and UK. I think you have one shot of declaring a foreign earned income on a primary residence, where you're exempt from paying tax. You just need to specify the income on form F2555 together with your F1040.

HTH
Darren

Ray

Or not ............

rew1000

Not sure about the detail of this, but it could depend when you moved to the US in 2007. If it was in the second half of the year and you're on a nonimmigrant visa, you would be considered a nonresident alien for tax purposes unless you opted to be treated as resident. If this is the case, it might be best to be a nonresident, as I imagine only income "effectively connected" to the US is taxed.

MsElui

our expat financial advisers told us that there was a three year deadline. If we sold our uk residence after 3 years of coming here - then any cash sent back to the us from the sale is subject to some exchange rate levy. (ie if you make a great deal on the exchange rate differentials - they can tax you on that). this levy didnt apply under 3 years.

YankeeDaz

Looks like you were cut off in your prime. I think I know what you were trying to say! Damn bad connections eh?


Darren

Ray

You got the massge ..lol

Longy

If I recall the case is if you have lived in the house for 2 out of the last 5 years then it is considered your main residence, which entitles you be exempt for up to $250,000 or $500,000 if married filing jointly and both of you lived there.

If you meet the ownership and use tests for the house (basically did you own it and live there) and you made less then this amounts above then you don't need to mention it at all.

YankeeDaz

You do need to mention it, otherwise the IRS, informed by the banks, will question what that large sum of money that came in from the UK was.

Form F2555 is used to claim the exemption, but you're only allowed to use it once.


Darren

Longy

But that form is for if you are claiming non-residence isn't it?

rew1000

And I doubt that a capital gain is "Foreign Earned Income"...

Longy

Yeah if it does go on there it is very vague, have looked at the instructions and it doesn't look right.

I sold my house last year and must admit I thought it was odd that there is nowhere that this goes.

Giantaxe

Not really. If the gain is excludable and less than the $250/500k threshhold, no taxable event has occurred and there is no "taxable income" from the sale and hence no need to report it. If those conditions don't apply then it's a capital gain just like any other capital gain and needs to be reported.

YankeeDaz

Here's the IRS link:-

http://www.irs.gov/businesses/small/...=98921,00.html

So the IRS are saying if your foreign gain is less than $250k/$500k then you do not have to report it, but that only applies to US citizens.

Permanent resident aliens need to file an F2555.

http://www.irs.gov/publications/p54/ch04.html

HTH
Darren

Giantaxe

Maybe I'm missing something here but I see nothing to suggest that the sale of a foreign residence by a non-citizen that doesn't produce a taxable gain must be reported. I do agree that an F2555 must be filed in relation to foreign earned income though.