Originally Posted by Pulaski (Post 12285290)

The capital gain on the payoff of your mortgage is created because it took fewer dollars to pay off the balance than you received when you took out the mortgage. Say you borrowed £120,000 when the exch rate was $2/£1, so you borrowed $240,000 from the IRS's perspective. Several years later, after you have paid off £20,000 and moved to the US you sell the house and pay off the mortgage. The exch rate is now $1/€1, so you pay £100,000, but at today's rate, from the IRS's perspective, it only cost you $100,000, not the $200,000 (paid down part of what) you received. You have a taxable gain of $100,000! :eek:

In short, it's the difference between the current dollar value of the mortgage payoff amount and the dollar value of the mortgage payoff amount at the exchange rate on the day you originally took out the mortgage (or most recent refinance if you have refi'ed previously). ....

Originally Posted by Pulaski (Post 12458738)

There is a standard deduction for bonuses it used to be 42%, but after the tax reform it is a little lower - probably around 38%-39%. Don't worry though, it all come out in the wash in your annual tax return.

Selling or refinancing a home outside the US creates two separate gains and losses - the gain/loss on the home, and the gain/loss on the loan, both are calculated in dollars. I think the gain on the home is fairly obvious (though there are allowances and deductions that may be available to reduce a gain or increase a loss), but the gain on the loan is the value of the payoff amount in USD calculated at the exchange rate when the loan was first taken out, less the value of the payoff amount at the date of the payoff/refi.

Here's an example I posted previously:

Originally Posted by Ecto17 (Post 12458777)

Can the tax burden be spread across a married couple opposed to just the husband who is the only one working? The reason l ask is because l don't think they are filling as a married couple this year as they only came over in the spring and therefore could this reduce the implication as otherwise it will about 15k l would think! Thanks

Originally Posted by Pulaski (Post 12458783)

Well maybe they should file as a married couple. If the contractual responsibility is his, i.e. her name isn't on the paperwork, then the only way to "share" that with his wife is to file jointly.

[I'll get back to your other questions later.]

Originally Posted by jammiie (Post 12458801)

If they came in May 2017 then they will owe the foreign mortgage gain as they pass the substantial presence test for 2017 and will be considered resident aliens regardless of how they chose to file.

Originally Posted by jammiie (Post 12458808)

I do not believe so. Their best bet would probably be to file married jointly as this will give them the lowest tax bill for their US earnings.

Cook_County has some views on the foreign mortgage gain tax and I expect he'll be on here before long.

Originally Posted by Ecto17 (Post 12458754)

Thanks for your response.
On the bonuses, are there further deductions or is it roughly all that is taken. Sorry if that seems an obvious one. ...