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US tax deduction for UK rental property?

US tax deduction for UK rental property?

Old Jan 23rd 2006, 7:17 pm
  #1  
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Question US tax deduction for UK rental property?

We are planning to buy a flat (as an investment) in the UK, partly financed by releasing some equity from our house in the US.

We are in two minds as to how much equity to release (versus using cash savings) for the purchase.

I have to admit, tax expertise isn't one of my many accomplishments - my eyes just glaze over... Has anyone else here done something similar - any advice?
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Old Jan 23rd 2006, 8:40 pm
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Default Re: US tax deduction for UK rental property?

Originally Posted by Elvira
We are planning to buy a flat (as an investment) in the UK, partly financed by releasing some equity from our house in the US.

We are in two minds as to how much equity to release (versus using cash savings) for the purchase.

I have to admit, tax expertise isn't one of my many accomplishments - my eyes just glaze over... Has anyone else here done something similar - any advice?
Tax implications on your second home are the same, whether that second home is in the UK *OR* the USA. So, the only thing you have to deal with is exchange rate.

See it's easy.
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Old Jan 23rd 2006, 8:48 pm
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Default Re: US tax deduction for UK rental property?

Originally Posted by franc11s
So, the only thing you have to deal with is exchange rate.

See it's easy.
Sorry, I also realise you would be repatriating funds back to the UK from the USA. The rate is shite for that right now - unless it was the other way.

Make sure you research this subject fully, the housing markets are changing as are interest rates. IMHO, the exchange rate is getting worse but say 5-10 years from now, the rate could be $1.3 again and you could wipe out your gains..

Be careful, this practice is not something you should get into lightly, there are far more variables. Whatever you decide, make sure you do it with KNOWLEDGE.

Good luck.
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Old Jan 23rd 2006, 9:06 pm
  #4  
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Default Re: US tax deduction for UK rental property?

Originally Posted by franc11s
Sorry, I also realise you would be repatriating funds back to the UK from the USA. The rate is shite for that right now - unless it was the other way.

Make sure you research this subject fully, the housing markets are changing as are interest rates. IMHO, the exchange rate is getting worse but say 5-10 years from now, the rate could be $1.3 again and you could wipe out your gains..

Be careful, this practice is not something you should get into lightly, there are far more variables. Whatever you decide, make sure you do it with KNOWLEDGE.

Good luck.
FWIW, this would be a one-way transfer as we are planning to return to the UK in 10-15 years from now.

But it's good to know that we can offset the loan against tax even if the property is in the UK.
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Old Jan 24th 2006, 1:05 pm
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Default Re: US tax deduction for UK rental property?

Originally Posted by Elvira
FWIW, this would be a one-way transfer as we are planning to return to the UK in 10-15 years from now.

But it's good to know that we can offset the loan against tax even if the property is in the UK.
*AND* even if the loan is in the UK.

You DID mention that you are renting it so the bad news is, you have to make sure you put that on your taxes too - it's income I am afraid - you cannot have your cake and eat it. However, expenses to maintain said rental property can be claimed.

Also, PLEASE check into the rule about it not being your "second home" since it is a rental. There are some things only an accountant can answer on that.

ALso, I assume you are not planning on becoming a citizen. There are US tax implications there too in the long term.

One or both of these may effect long term capital gains... PLEASE talk to your accountant.
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Old Jan 24th 2006, 7:52 pm
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Default Re: US tax deduction for UK rental property?

Originally Posted by franc11s
Sorry, I also realise you would be repatriating funds back to the UK from the USA. The rate is shite for that right now - unless it was the other way.

Make sure you research this subject fully, the housing markets are changing as are interest rates.
Yeh, I think that's good advice. Think long and hard about where the UK property market and the dollar's going to go over the next few years. The dollar may work in your favour when the Chinese finally tire of buying US securities, but I doubt the property market will, at least in the short term.
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Old Jan 25th 2006, 1:09 am
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Default Re: US tax deduction for UK rental property?

Originally Posted by Elvira
We are planning to buy a flat (as an investment) in the UK, partly financed by releasing some equity from our house in the US.

We are in two minds as to how much equity to release (versus using cash savings) for the purchase.

I have to admit, tax expertise isn't one of my many accomplishments - my eyes just glaze over... Has anyone else here done something similar - any advice?
All posts are very sound advice... don't forget about your current house - in terms of its equity.... how is it going to change over time? If there is a dip in both markets... do you have enough to cover things if you had to sell either? If you have current investment property in the US; can you do a 1031 exchange with international property?!?!

I would really think hard about it and do your due diligence. Also, I would touch base with your financial planner too if you have one because not only are there tax liabilities.... property ownership etc becomes part of your estate!! 90% of potential homebuyers I come across never bother to think about that! Down the road you also may want to think about tax domicile eligibility. Over kill now? Perhaps but I think you can't be too careful!
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