Cook_County

There is nothing unfair at all. The OP chose to move to the US and subject the OP and husband to US tax using US rules. As the move was suggested by an employer, it would be normal for the employer to pay any excess host country taxes.


Deloitte do 100% of the tax prep work in India; so it may be best to speak with the Indian located specialists directly. I have outlines some of the main questions to ask Deloitte above. It is puzzling however that the OP took a major financial decision without seemingly seeking any US tax advice at all, given that the OP knew that the family are currently US resident.

davenay67

I agree..!! Thanks for the answers.

I tried browsing the Wiki but did not find my answers. I guess I have been too much of an ostrich since first moving over here in '97, but as time passes and financial decisions and implications loom on the horizon the minefield of financial implications must be navigated.

Pulaski

In fairness, it isn't intuitively obvious that paying off a debt would have tax consequences, and indeed it rarely would. It is only the FX angle that gives this debt a tax dimension.

mrken30

If someone has taken out a UK loan recently, it is unlikely they will have to pay this tax, unless the pound falls against the dollar.

kodokan

Deloitte (yes, the Indian team) did our first year taxes when we moved over, and nothing they did could remotely be considered tax advice; it was simple tax return preparation where we had to feed all the asked-for details into a Turbotax-a-like piece of bespoke software (except Turbotax is a zillion times friendlier and better). They were woefully unable to answer any open-ended questions. They also made several errors that I discovered upon checking the return prior to filing, two of which - not instructing us on how to back out an accidental overpayment to a HSA (very simple before the return is filed, penalized up the wazoo for ever afterwards), and somehow forgetting to include form 8938 - would have had serious long term repercussions for us.

Plus side - I learned a lot about filing taxes, and have found it very easy and preferable to do it myself going forward, even with things like exercising stock options and moving states mid-year.

Cook_County

I concur. The "free" employer paid tax services from the Big 4 firms are sometimes near useless, because the Big 4 firms are working for the employer (who foots the bills), not the employee. The OP could engage a different adviser to handle the tax returns and provide advice.

Mercury39

Does anyone have any links or examples that explain the implications of how to account for this with a typical U.K. Repayment mortgage. In effect every month I make a capital repayment, so I'm now wondering if I should have been accounting for the potential exchange rate difference every month. All the examples I found say far just talk about what happens when you sell and repay a mortgage.

Pulaski

There is a de minimis exception, so making monthly payments does not require a CGT calculation.

Mercury39

Thank you, that makes it simple.

Hanco

If any additional repayments are made using existing funds in sterling (from savings in UK accounts that have not been contributed to by inherited money nor by money from the US)... does that protect the mortgage payer from this exchange rate benefit? I'm guessing it does, while any payment achieved by sending US$ over to the UK at a time of US$ strength is a gain?

Thanks for your experience and willingness to share

Cook_County

No- that is not what Section 988 says.

Pulaski

No, the source of funds makes no difference. The point is that when the value of pound sterling falls it takes fewer dollars to repay the loan. The IRS works everything in dollars, so the fact that you are using devalued pounds to repay the loan doesn't enter the equation from the IRS's perspective.

Bear in mind that if the pound stays low in value you will owe less CGT when you sell the property - the tax on the loan pay-off is necessarily the inverse of what happens when the property is sold (assuming the same exchange rate applies for both) - the more tax (if any) you pay on the loan payoff, the less tax you pay on the gain. ..... In other words, from a purely tax-owed perspective, it is best to pay off the loan when the value of the pound has risen (compared to when you took out the mortgage), and best to sell the property when the pound has fallen compared to when you purchased the property. And it is better to do both when you aren't tax-resident in the US.