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US tax deductions on UK rental property - advice please

US tax deductions on UK rental property - advice please

Old May 27th 2011, 7:15 pm
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Default US tax deductions on UK rental property - advice please

Hi folks

More questions from me, really sorry about this again I did use the search!
Hopefully I will be able to contribute advice once I have completed my move!

So, I will want to rent out my property when I am in the US, and have got to grips with the dual tax arrangements between UK and USA, and the NRL issues ( I think!) but I have some questions for those who have done it and clai'm tax deductions.

1. I really don't understand what tax deductable means to me in real terns, and wiki/googlizing for a day has made me none the wiser. So if someone could put it in laymans terms that would be awesome.

2. I can deduct my mortgage interest payments? What is the mechanism for this and do I just lump the full interest payment value or is it a sliding scale?

3. I need to buy furniture for the property in order to let it out, if I buy that before the move does that mean I can not deduct it from my US taxes or can I start the deductions, just further down the depreciable asset scale so the payback is not as good? Can I deduct interest payments on this expenditure as well as the depreciable portion of the asset?

4. Do I need my visa in place and registered as a non domiciled uk citizen working and paying taxes in the US, and actually living in the US before I can start accuring tax deductable expenditure or is it as soon as I get my visa (i.e. before I physically leave the UK for the first time)

5. Some of the rooms are totally uninhabitable as I am renovating, so not just simple repairs and painting - are these costs tax deductable and if so, does the same principle as point 3 apply? If it would be more tax efficient to wait and do it when the principle of point 3 kicks in, then I have a wee problem.

6. I have worked out that my monthly expenditure on the flat every year will, at best, break even against the rental income - so is this a neutral income and not affect my US income levels or is it swings and roundabouts - i.e. I'll get taxed on the income, but I will recover it against the monthly expenditure?

Any other things I should be considering

Hope the above makes sense
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Old May 27th 2011, 7:38 pm
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Default Re: US tax deductions on UK rental property - advice please

doc, these are pretty specific, sophisticated questions. You'll want to ask your tax adviser IMO before doing any of that work. I'm not sure how those rennovations can be written off if they happen before you live in the US.
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Old May 27th 2011, 8:47 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by docholywood View Post
Hi folks

More questions from me, really sorry about this again I did use the search!
Hopefully I will be able to contribute advice once I have completed my move!

So, I will want to rent out my property when I am in the US, and have got to grips with the dual tax arrangements between UK and USA, and the NRL issues ( I think!) but I have some questions for those who have done it and clai'm tax deductions.

1. I really don't understand what tax deductable means to me in real terns, and wiki/googlizing for a day has made me none the wiser. So if someone could put it in laymans terms that would be awesome.

2. I can deduct my mortgage interest payments? What is the mechanism for this and do I just lump the full interest payment value or is it a sliding scale?

3. I need to buy furniture for the property in order to let it out, if I buy that before the move does that mean I can not deduct it from my US taxes or can I start the deductions, just further down the depreciable asset scale so the payback is not as good? Can I deduct interest payments on this expenditure as well as the depreciable portion of the asset?

4. Do I need my visa in place and registered as a non domiciled uk citizen working and paying taxes in the US, and actually living in the US before I can start accuring tax deductable expenditure or is it as soon as I get my visa (i.e. before I physically leave the UK for the first time)

5. Some of the rooms are totally uninhabitable as I am renovating, so not just simple repairs and painting - are these costs tax deductable and if so, does the same principle as point 3 apply? If it would be more tax efficient to wait and do it when the principle of point 3 kicks in, then I have a wee problem.

6. I have worked out that my monthly expenditure on the flat every year will, at best, break even against the rental income - so is this a neutral income and not affect my US income levels or is it swings and roundabouts - i.e. I'll get taxed on the income, but I will recover it against the monthly expenditure?

Any other things I should be considering

Hope the above makes sense
Can't help with your questions, they are very specific and as already mentioned you need a tax specialist to help you.

One more thing for you though, you can claim depreciation on your UK house. No idea how it is done, our tax man looks after all that, but add it to your list of questions.
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Old May 28th 2011, 1:17 pm
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Default Re: US tax deductions on UK rental property - advice please

OK fair enough- looking for personal experience too if anyone has done the same thing?

Would appreciate a dumbass guide to what 'deductable' means to me in real terms, i.e. if I have significant deductables, does that mean I get taxed less (or tax rebate at end of financial year?) and therefore better take home pay?
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Old May 28th 2011, 4:01 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by docholywood View Post
OK fair enough- looking for personal experience too if anyone has done the same thing?

Would appreciate a dumbass guide to what 'deductable' means to me in real terms, i.e. if I have significant deductables, does that mean I get taxed less (or tax rebate at end of financial year?) and therefore better take home pay?
http://en.wikipedia.org/wiki/Tax_deduction

http://taxes.about.com/od/deductions...ns_Credits.htm

http://www.irs.gov/taxtopics/tc500.html

The forums and info for TurboTax are also very good & have several professionals onboard: https://ttlc.intuit.com/
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Old May 28th 2011, 4:24 pm
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Default Re: US tax deductions on UK rental property - advice please

Thanks Meauxna! Will go away and study these links now sure to have more questions afterwards haha
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Old May 28th 2011, 4:33 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by docholywood View Post
Thanks Meauxna! Will go away and study these links now sure to have more questions afterwards haha
Find yourself a CPA with US/UK *experience* (sometimes they lie, check it out). The first year is a nightmare, don't expect to learn it all in one go.
I also pay someone to repair my car.
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Old May 28th 2011, 5:06 pm
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Default Re: US tax deductions on UK rental property - advice please

You ask complex questions that need the paid advice of a pro. That is not me.

But a few things to think about that I am aware of.... (and could be wrong on, so don't take this as advice):

A full time rental property does not ordinarily count as one you can use to deduct mortgage interest payments from your income. But you may ask how the rental monies are treated as income, whether the rental can be considered a business (and hence whether you can deduct business expenses), and whether running and deriving income from a business is a violation of your status in the US.

If you rent a property out, but you personally spend time in it each tax year equivalent to at least either (a) 14 days, or (b) 10% of the time it is rented out, whichever is longer, it may qualify you for the mortgage interest deduction.

If the lender is not US-based, you will probably (unless they have arrangements for dealing with this) run into the following issue. You are supposed to withhold tax on interest payments to foreign persons (which includes banks), and give that withheld tax money to the IRS. Presumably, the foreign bank would then have to file a claim with IRS to get their money back. Hard to imagine, yes? Is this typically done and/or enforced by IRS? I have no idea.

So, like I said, you need professional advice. Anything said here, including my comments above, is not going to be reliable enough for you.
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Old May 28th 2011, 5:15 pm
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Default Re: US tax deductions on UK rental property - advice please

That is food for thought - i appreciate it is not expert opinion, but I am begining to see the pitfalls of the US tax system in all it's tangled mess and confusion glory.

I think I will need to get tax preparation / attourney assistance thrown in to my package throughout my time in USA be it 3 years or for life!

It's a blooming minefield!
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Old May 28th 2011, 5:18 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by meauxna View Post
Find yourself a CPA with US/UK *experience* (sometimes they lie, check it out). The first year is a nightmare, don't expect to learn it all in one go.
I also pay someone to repair my car.
LOL I don't need to pay someone to fix my car if it is out of warranty, I can DIY. I will look into CPA with UK/USA experience. Top tip.
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Old May 28th 2011, 5:32 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by docholywood View Post
LOL I don't need to pay someone to fix my car if it is out of warranty, I can DIY. I will look into CPA with UK/USA experience. Top tip.
I use Pete Newton who is an expat for our taxes. I found him on here. www.doug-tax.com. He is great. Did you file a non resident landlord form with HMRC? You will need to do so before you leave. My husband owns a house in Scotland that is rented out. He filed a non resident landlord form before he left. He then received another form from HMRC to fill out that was sent to him here in the UK. He was then advised that he would need to do a UK self assesment for the next two years but since he was making less than the UK personal allowance on the house he is no longer required to do another unless his situation changes.
We do deduct the mortgage interest on our US taxes along with insurance and repairs.

Everyone's situation is different. Also remember the UK tax year is April to April and the US is January to December.


Honestly. Get in contact with Pete. He's a great guy. Very proffesional and very knowledgable!
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Old May 28th 2011, 5:42 pm
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Default Re: US tax deductions on UK rental property - advice please

Originally Posted by docholywood View Post
LOL I don't need to pay someone to fix my car if it is out of warranty, I can DIY. I will look into CPA with UK/USA experience. Top tip.
You have one of those computer DXs? My hub's a mechanic, but I keep him away from the Volvo engine. He can go play with the Elkie.
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Old May 28th 2011, 6:43 pm
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Default Re: US tax deductions on UK rental property - advice please

I can get a hold of Diagnostics tools if needed but if it is purely mechanical I can deal with it - like I said, inside warranty I'd punt it in to the dealer who will do the work. Outside of warranty, I'll do it myself.

Thanks for the personal recomendation - I'll hit that up when the time is right.

I am not doing any formal paperwork until I have the offer in my grubby little paws - as it might all be in vain in the in the end! But will take your advice about what I need to do before I leave such as NRL and self assessments etc.
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Old May 28th 2011, 6:49 pm
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Default Re: US tax deductions on UK rental property - advice please

And here I've been so nice not jibing you about Holy wood... tsk.
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Old May 28th 2011, 11:07 pm
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Default Re: US tax deductions on UK rental property - advice please

Sorry, hope you don't think I have been cheeky in one of my post? It wasn't intended!

LOL the one 'l' thing has got it's got a significance, it's not a mistake!

I'm just not quite willing to explain why, that's all!


Anyway, an American who is correcting an Englishman's spelling?

Kidding!!
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