Rose of the Shires

Hello
It's been several years since I was around these parts-I hope everyone is well. I've always found these forums to be a mine of useful information so here goes...

I am a UK born UK/US dual citizen, living in the US (NY). Sadly, both parents have passed away in recent years and my sibling and I
will inherit their family home. Probate has been granted. Our UK solicitor is preparing to transfer the property to my sibling and me. A family member is currently staying in the home, covering Council Tax and bills and paying a small rent. Current plans are to keep the property and for our own children to inherit in due course (this may change if we need/want to sell at some point).

Hoping that someone can give a broad overview of tax implications if any. What tax returns/reporting will I need to make while owning the UK property? What are the tax implications if we decide to sell?
Does anyone have a recommendation for an accountant who is well versed in UK/US tax/inheritance matters?
TIA
Rose

Glasgow Girl

You will need to file Schedule E with your tax return. It documents income, expenses and depreciation. It is relatively easy to complete using Turbo Tax. First time around you might want to use a domestic CPA to do it for you and after that it should be straightforward to do it yourself if you choose to. A domestic CPA will be able to take care of it. The rules around having an overseas rental are almost identical to having one in the US. The only difference I am aware of is that you have to depreciate the property on a 30 year timeline versus the 27.5 years for domestic property but a decent domestic CPA should be well aware of that. You don’t need a very expensive international CPA.

Tax implications on selling are that you will have to pay capital gains taxes on all gains because you have not lived in the property for 2 of the past 5 years, however currently you should be able to use the stepped up basis as the cost of the property. That is the value of the house when you inherited it. You should get a valuation and file that away as evidence of the cost when you inherited it. Democratic administrations are very keen to eliminate the stepped up basis for inherited property so you may want to keep your eye on that. Assuming there is no mortgage and you don’t refinance at some future date then you do not need to worry about foreign currency gains on mortgage payoff.

if your inheritance is over $100,000 in value then you have to report it to the IRS. There is no Federal tax to pay on an overseas inheritance but some states may tax it. I believe the rules re the same as it would be a domestic inheritance. A quick google search should tell you if your state taxes inheritances, and what form you need to use to report it to the IRS if applicable.

Pulaski

Good advice from Glasgow Girl, though depreciation on non-US real estate (value of building only, not land - with the rule of thumb being that typically 80% of the value is in the building), is over 40 years, not 30 (perhaps that was just a typo).

Also I would specifically draw your attention to the point at the end of GG's advice, that some states tax inheritances received, and that is what has the potential to bite you, as although there is no federal tax on inheritances received the few states that tax inheritances received start at a fairly low figure, so depending on where you live you could lose a tidy chunk to state tax.

Expatrian

IRS form 3520 is the form to use, if applicable:

https://www.irs.gov/businesses/gifts...foreign-person

mommapudding

To report the earnings in the UK, I believe there’s a form for the tenant (or managing company) to complete to say that 20% of the rent has been withheld for UK tax, as the owner is not UK resident. Then you’d file a form saying you don’t owe because that’s been done.

Glasgow Girl

It is now 30 years for any foreign property first rented in 2018 or later.

Rose of the Shires

Many thanks all-terrific advice here. It's VERY much appreciated.
The quick Google that Glasgow Girl suggested tells me that NY is not a state that imposes inheritance tax, so that's a relief.
Much reading to be done, so I'm sure I'll be back with questions : )

Thanks again!
Rose

Pulaski

By which you mean "you get a credit with the IRS for tax paid in the UK", as you cannot just "say to the IRS you don't owe", that is not something the IRS allows.

mommapudding

In the UK silly! I stop at my recently researched UK side. My tax guy here can deal with the US shenanigans. Including that nasty taking advantage of the favorable exchange rate on loans tax - argh!
UK- A form to allow you to employ a tax person (with international experience naturally) a form for your tenant (or management company) to withhold the tax from rent payments and one to say the tax was withheld and paid.

Cook_County

The foreign estate is considered a specified foreign financial asset, so reported on Form 8938. Distributions from the Estate are reported on Form 3520. Because the family member is paying a below market rent, you are currently making a gift to that family member of the rent foregone, requiring filing US gift tax returns if greater than $16,000 per year.