Andrew_365

L1B

I pay taxes here, I am just not sure if I should disclose this income 1. becuase I disclose in the UK 2. it is below thresholds.

Pulaski

After the first (partial) year, the IRS deems you to be a "resident alien", so you must report your gross rental income outside the US, on your US tax return, and then deductible allowable expenses including mortgage interest, repairs and maintenance, management fees, insurance premiums, property taxes (if any) and depreciation. Depreciation is mandatory, and is calculated as 1/40th of the value of the building each year, and 20% of the purchase price of appliances each year for five years.

Cook_County

Don't forget you'll be filing an FBAR each year reporting the UK bank account.

MsElui

also when you do declare - the uk mortgage interest can be used to offset some of your tax liability

Pulaski

Your mortgage interest will reduce your taxable income, leading to a lower tax liability.

In practice the other deductions allowed by the IRS for tax on rental income will likely reduce your taxable rental income down to a very low figure, or even create a tax loss, which you might be able, at least in part, to set against your earned income.

nun

You must realize that you are liable to tax in both the UK and the US if you are a US tax resident with UK sourced rental income. If your UK sourced net income is below your UK personal allowance then there will be no UK tax to pay, however you must also calculate the net income using IRS rules and enter that on you 1040 so it can be taxed by the US.

fidobsa

Are you sure it is excluded? I just submitted my return using TaxCalc software and I had to declare that my UK rental income was on the basis of double taxation. I live in Hungary. The TaxCalc software was only about £30 but I would not recommend it as it was not easy to use.

H Bomb

Our UK rental income doesn't get taxed in the UK as it falls under the allowance.
However we end up getting taxed on it in the US which wipes out any 'profit' we make on it.

Pulaski

You have taxable profits after deducting mortgage interest, insurance, repairs and maintenance, management fees, and depreciation on the building (2.5%) and appliances (20%)?

H Bomb

That's how you do the tax.

We get a few hundred more in rent (after management fees) versus our mortgage payment so that is actual profit/money in the bank at the end of the month - however that is pretty much the same as what we end up having to pay as tax.

At the end of the day it is costing us nothing (at the moment) and tenants are slowly paying off our mortgage as house prices (hopefully) go up so cannot complain.

Pulaski

So you're talking about cash flow, not profit, right?

Cook_County

But you are also potentially paying US tax on the foreign currency gain recognised on the repayment of the mortgage debt, especially post June 2016.

HartleyHare

We were in the same situation when we let our UK house during our 2 year stint in the US. I think the first year was fine as we had tax credits carried over, but 2nd year we were taxed around $4k, which would have been on-going if we had remained in the US. The "profit" that we were taxed on wasn't money that we could spend at will, but used to meet the mortgage payments.

Pulaski

That seems like a lot of tax unless you had very little mortgage interest (small mortgage or a very low interest rate), and/or had a remarkably high rent on a low value property (building) ..... Or you weren't deducting depreciation.

If you can't show a tax loss on rental property, you need a better tax accountant!

fidobsa

I looked this up today and the threshold is £2500, above which you have to register as a non resident landlord.