UK mortage for US tax
Mar 14th 2023, 9:19 pm
#1
Forum Regular
Thread Starter
Joined: Feb 2023
Posts: 89
UK mortage for US tax
Hi
I just moved to US and my husband lives in the UK at the moment. We have a mortage for our UK flat in the name of both us. However, it is paid by my husband. I have a few questions and hope someone can help.
1. Because I moved to US last year for a few months and I only fill in the Non-residental alien form, I assume I do not need to report anything about my UK mortage this year. Is it correct?
2. From the next year, do I need to report my UK mortage for the currency difference for the monthly mortage payment even it is paid by my husband not me? If my husband pay 1000 GBP per month. 300 GBP are interests. How do I report it to US to pay the tax for the currency difference? Is it based on the currency difference at the moment and the time I got the mortage?
3. Or I only need to make the report when I pay a lum sum or when I do the refinance ?
4. Which tax form should I use in the turbotax? Does the tax rate based on my ordinary income tax rate at the moment or 37%?
Thanks for the help. It really confuses me..
I just moved to US and my husband lives in the UK at the moment. We have a mortage for our UK flat in the name of both us. However, it is paid by my husband. I have a few questions and hope someone can help.
1. Because I moved to US last year for a few months and I only fill in the Non-residental alien form, I assume I do not need to report anything about my UK mortage this year. Is it correct?
2. From the next year, do I need to report my UK mortage for the currency difference for the monthly mortage payment even it is paid by my husband not me? If my husband pay 1000 GBP per month. 300 GBP are interests. How do I report it to US to pay the tax for the currency difference? Is it based on the currency difference at the moment and the time I got the mortage?
3. Or I only need to make the report when I pay a lum sum or when I do the refinance ?
4. Which tax form should I use in the turbotax? Does the tax rate based on my ordinary income tax rate at the moment or 37%?
Thanks for the help. It really confuses me..
Mar 15th 2023, 1:41 am
#2
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 874
Re: UK mortage for US tax
1. You would report the interest on your UK mortgage if itemizing as a deduction, or a rental expense if renting it out. Because you do not pay the mortgage you cannot itemize it unless filing jointly with your husband (see 2 below) and since it’s not a rental that does not apply. So if selecting married filing separately nothing to report on the mortgage interest, if married filing jointly then see 2 below.
2. So long as your husband pays the mortgage from funds independent of you and you choose married filing separately you should not need to declare any foreign currency gain. If you file married filing jointly or are using joint funds then you should report any foreign currency gain if it exceeds $200 in any one payment. To calculate that you would take the principal repayment and multiply it by the exchange rate in the date the principal was paid and subtract that from the same principal amount multiplied by the exchange rate on the date the mortgage was originated. If the result is greater than $200 then you have a taxable foreign currency gain at your highest personal income tax rate. Less than $200, there is nothing to report.
3. You should report all foreign currency gains in excess of $200 on all principal repayments whether part of a regular monthly payment or a lump sum pay off due to refinancing or sale. A way round this is to break down the principal payment into multiple transactions that individually create a foreign currency gain less than $200. Arranging to make payments every two weeks instead of monthly might achieve that.
4. Foreign currency gain on a mortgage is reported as miscellaneous income on the 1040 and described as Section 988 Foreign Exchange Income. It is taxed along with all other ordinary income and therefore will impact your highest personal marginal tax rate.
2. So long as your husband pays the mortgage from funds independent of you and you choose married filing separately you should not need to declare any foreign currency gain. If you file married filing jointly or are using joint funds then you should report any foreign currency gain if it exceeds $200 in any one payment. To calculate that you would take the principal repayment and multiply it by the exchange rate in the date the principal was paid and subtract that from the same principal amount multiplied by the exchange rate on the date the mortgage was originated. If the result is greater than $200 then you have a taxable foreign currency gain at your highest personal income tax rate. Less than $200, there is nothing to report.
3. You should report all foreign currency gains in excess of $200 on all principal repayments whether part of a regular monthly payment or a lump sum pay off due to refinancing or sale. A way round this is to break down the principal payment into multiple transactions that individually create a foreign currency gain less than $200. Arranging to make payments every two weeks instead of monthly might achieve that.
4. Foreign currency gain on a mortgage is reported as miscellaneous income on the 1040 and described as Section 988 Foreign Exchange Income. It is taxed along with all other ordinary income and therefore will impact your highest personal marginal tax rate.
Mar 15th 2023, 2:02 am
#3
Forum Regular
Thread Starter
Joined: Feb 2023
Posts: 89
Re: UK mortage for US tax
1. You would report the interest on your UK mortgage if itemizing as a deduction, or a rental expense if renting it out. Because you do not pay the mortgage you cannot itemize it unless filing jointly with your husband (see 2 below) and since it’s not a rental that does not apply. So if selecting married filing separately nothing to report on the mortgage interest, if married filing jointly then see 2 below.
2. So long as your husband pays the mortgage from funds independent of you and you choose married filing separately you should not need to declare any foreign currency gain. If you file married filing jointly or are using joint funds then you should report any foreign currency gain if it exceeds $200 in any one payment. To calculate that you would take the principal repayment and multiply it by the exchange rate in the date the principal was paid and subtract that from the same principal amount multiplied by the exchange rate on the date the mortgage was originated. If the result is greater than $200 then you have a taxable foreign currency gain at your highest personal income tax rate. Less than $200, there is nothing to report.
3. You should report all foreign currency gains in excess of $200 on all principal repayments whether part of a regular monthly payment or a lump sum pay off due to refinancing or sale. A way round this is to break down the principal payment into multiple transactions that individually create a foreign currency gain less than $200. Arranging to make payments every two weeks instead of monthly might achieve that.
4. Foreign currency gain on a mortgage is reported as miscellaneous income on the 1040 and described as Section 988 Foreign Exchange Income. It is taxed along with all other ordinary income and therefore will impact your highest personal marginal tax rate.
2. So long as your husband pays the mortgage from funds independent of you and you choose married filing separately you should not need to declare any foreign currency gain. If you file married filing jointly or are using joint funds then you should report any foreign currency gain if it exceeds $200 in any one payment. To calculate that you would take the principal repayment and multiply it by the exchange rate in the date the principal was paid and subtract that from the same principal amount multiplied by the exchange rate on the date the mortgage was originated. If the result is greater than $200 then you have a taxable foreign currency gain at your highest personal income tax rate. Less than $200, there is nothing to report.
3. You should report all foreign currency gains in excess of $200 on all principal repayments whether part of a regular monthly payment or a lump sum pay off due to refinancing or sale. A way round this is to break down the principal payment into multiple transactions that individually create a foreign currency gain less than $200. Arranging to make payments every two weeks instead of monthly might achieve that.
4. Foreign currency gain on a mortgage is reported as miscellaneous income on the 1040 and described as Section 988 Foreign Exchange Income. It is taxed along with all other ordinary income and therefore will impact your highest personal marginal tax rate.
1. In summary, I do not need to report anything related to my mortage because my husband pays it by his salary even though the mortage is in the name of both of us.
2. For my first question, I beleive not matter the payment is done by me or by husband, I do not need to report it because I am the NRA for my first year (I am just curious about it)
3. I do not want to drag my husband into this complicated US tax system until he moves to US to work. He needs to pay UK tax. I want his life easier. So, my husband can ask UK bank to do every two weeks payment directly, right?
Please give me a final confirmation of all of the three questions or correct me. Many many thanks.
Mar 15th 2023, 2:19 am
#4
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 874
Re: UK mortage for US tax
Many thanks for your reply. That is reallyyy very very nice and professional.
1. In summary, I do not need to report anything related to my mortage because my husband pays it by his salary even though the mortage is in the name of both of us.
2. For my first question, I beleive not matter the payment is done by me or by husband, I do not need to report it because I am the NRA for my first year (I am just curious about it)
3. I do not want to drag my husband into this complicated US tax system until he moves to US to work. He needs to pay UK tax. I want his life easier. So, my husband can ask UK bank to do every two weeks payment directly, right?
Please give me a final confirmation of all of the three questions or correct me. Many many thanks.
1. In summary, I do not need to report anything related to my mortage because my husband pays it by his salary even though the mortage is in the name of both of us.
2. For my first question, I beleive not matter the payment is done by me or by husband, I do not need to report it because I am the NRA for my first year (I am just curious about it)
3. I do not want to drag my husband into this complicated US tax system until he moves to US to work. He needs to pay UK tax. I want his life easier. So, my husband can ask UK bank to do every two weeks payment directly, right?
Please give me a final confirmation of all of the three questions or correct me. Many many thanks.
2. I believe that filing as NRA means that you only pay tax on income earned within the US, so the foreign currency gain is not reportable until you become a US person which you will be for 2023.
3. I would do the calculations first before splitting up the mortgage payments. You may not have any ForEx gain to worry about. For example, if you have a £700 principal repayment each month you can afford to have a 28.5 cent difference in the exchange rates before incurring a reportable gain because £700 * a difference of 28.5 cents would put you just below the $200 reporting threshold. Any difference over 28.5 cents would result in a reportable gain. You would need to do the calculation for the specific principal payment and the relevant exchange rates. If you do have a reportable gain I would talk to your bank about making more frequent payments of smaller amounts. Some will oblige, some won’t.
Although I have knowledge of UK/US tax issues I am not a licensed tax professional so bear in mind that all of the above is my interpretation of the tax regulations only and is NOT professional advice.
Last edited by Glasgow Girl; Mar 15th 2023 at 2:23 am.
Mar 15th 2023, 2:50 am
#5
Forum Regular
Thread Starter
Joined: Feb 2023
Posts: 89
Re: UK mortage for US tax
1. Correct, so long as he is paying it from an independent account that is not jointly owned by both of you, and you are filing Married Filing Separately.
2. I believe that filing as NRA means that you only pay tax on income earned within the US, so the foreign currency gain is not reportable until you become a US person which you will be for 2023.
3. I would do the calculations first before splitting up the mortgage payments. You may not have any ForEx gain to worry about. For example, if you have a £700 principal repayment each month you can afford to have a 28.5 cent difference in the exchange rates before incurring a reportable gain because £700 * a difference of 28.5 cents would put you just below the $200 reporting threshold. Any difference over 28.5 cents would result in a reportable gain. You would need to do the calculation for the specific principal payment and the relevant exchange rates. If you do have a reportable gain I would talk to your bank about making more frequent payments of smaller amounts. Some will oblige, some won’t.
Although I have knowledge of UK/US tax issues I am not a licensed tax professional so bear in mind that all of the above is my interpretation of the tax regulations only and is NOT professional advice.
2. I believe that filing as NRA means that you only pay tax on income earned within the US, so the foreign currency gain is not reportable until you become a US person which you will be for 2023.
3. I would do the calculations first before splitting up the mortgage payments. You may not have any ForEx gain to worry about. For example, if you have a £700 principal repayment each month you can afford to have a 28.5 cent difference in the exchange rates before incurring a reportable gain because £700 * a difference of 28.5 cents would put you just below the $200 reporting threshold. Any difference over 28.5 cents would result in a reportable gain. You would need to do the calculation for the specific principal payment and the relevant exchange rates. If you do have a reportable gain I would talk to your bank about making more frequent payments of smaller amounts. Some will oblige, some won’t.
Although I have knowledge of UK/US tax issues I am not a licensed tax professional so bear in mind that all of the above is my interpretation of the tax regulations only and is NOT professional advice.
Many many thanks for your answers. Much appreaciated.
