Chandler

I bought a house in the US in 9/2011 and I am thinking of selling. My assumptions:

- If I sell before 9/2012 I have a taxable event at ordinary income
- If I hold out and sell between 9/2012-9/2013 I have a taxable event at capital gains
- If I sell after 9/2013, and I have been a resident in the property for the full two years, I have no taxable events

Now, what happens if I return to the UK in 2012 and sell the property in 2013?

Because I have wound up my affairs and I am not a permanent resident or citizen I believe that 2012 should be my last year of US tax obligations leaving me to focus on my UK Tax Return for 2013. Selling my ‘overseas’ property in the UK should be tax free if it was my primary residence under the Private Residence Relief. Per HMRC:

“When you sell or dispose of your own home you won't have to pay any Capital Gains Tax if you satisfy two conditions. For the whole time you've owned it both the following must apply:
- it's been your only home or main residence
- you have used it as your home and nothing else

To work out the relief, you need to work out the period that you've owned your home for. This starts on the later of:
- the date you bought or acquired it
- 31 March 1982

It ends on the date that you sell or dispose of it. The final three years (36 months) always qualify for relief. This applies even if you weren't living there during the final three years. It must have been your only or main home at some point during the time that you've owned it.”

Does anyone agree with my thinking?

Michael

Actually I believe there is a US law that requires withholding of a certain percentage for possible taxes on the sale of a property by a non resident but can be waived if the property qualified as a primary residence (lived in 2 of the prior 5 years and the gain is under the exclusion amount).

Chandler

If a UK citizen bought a US property as, for example, a holiday home, they would never be liable for US tax upon sale would they?

This forms the basis of my question, and maybe it is a false premise, but if I leave the US in 2012 to return to the UK then all my future tax considerations will need to be based solely on my UK status from 2013 onwards.

nun

If you move back to the UK you will become an NRA. You will have to comply with IRS regs for the taxation of NRAs. There may well be a 10% withholding tax on the sale under FIRPTA

http://www.irs.gov/businesses/small/...105000,00.html

You will then have to file a 1040NR etc to. I believe you will get the capital gains exemptions on the sale of the property. You will also have to deal with the sale on your UK taxes

Chandler

Thanks for this. My laymans reading is that the buyer has to withhold 10% of the purchase price and then I need to go about trying to get that released/reduced.

This is getting complicated, and I probably need a tax advisor, but the board has been good to me in the past so I'll try once more...

If I have to pay tax on the sale in the UK then I presume I can offset this against any tax liability in the US to avoid double taxation. If however there is a tax rule that is applicable in the UK, but that I am then given an exception from (Private Residence Relief), will I have to pay tax in the US or will the US honor the UK code and my charge or otherwise arising from the UK code?

nun

The US has no interest in any "UK code". You may well qualify for UK Private Residence Relief, but even if you have no UK capital gains liability the US will still apply it's tax laws to the sale of your US property. You will have to file a 1040NR and state tax forms to declare any capital gains. For federal taxes the first $250k of capital gains are not taxed.