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US Tax question, sold UK property

US Tax question, sold UK property

Old Feb 23rd 2019, 10:04 pm
  #1  
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Default US Tax question, sold UK property

Hi all

as a family we relocated from the UK to Phoenix in October 2018. Our house was sold the same month but it didn’t complete until 31st January 2019.

we moved into the UK property in Jan 2017 and had a mortgage of approx 230k gbp. So that got paid off from the sale plus. 9k gbp redemption penalty! I had a 5 year fixed mortgage

anyways I was wandering what I have to declare now I’m in the USA. Obviously nothing for 2018 but for 2019 will I be stuck with an IRS tax bill on any gain at all?
or can I just say nothing about the house sale? It was our main residence.

figures:
bought for 321k gbp (2017)
sold for 359k (2019)
mortgage 231k and that was pretty much our closing figure with the redemption penalty.

We are using Deloitte for 2018 return. They didn’t advise anything but said we should’ve completed in 2018 as then we wouldn’t have had to pay any gains tax come 2019 return.

Any help advice much appreciated.
Do we have to report anything? As I want to use the money to buy a home in phoenix.
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Old Feb 23rd 2019, 10:54 pm
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Default Re: US Tax question, sold UK property

Not a tax pro.

You received your profits in 2019?
And you will be tax residents for 2019?
You lived in the house less than two years?
I think these are the relevant points..

If the answer is yes to all of these, I think you are required to declare the profit after costs as Capital Gains.
You may have to pay tax on the (profits - [UK taxes/selling costs])
So that will be the Standard Federal Capital Gains tax plus the Arizona Capital Gains tax. You can look them up.

You can check out this link.
https://www.ft.com/content/54bedb30-...1-00144feab7de

(Looks like the $250,000/$500,000 exclusion, (non-taxable profit), won't apply since you lived in it less than 2 years.)
(Suggest TurboTax or similar. It's scary at first but then becomes familiar.)
(If you can afford to max a 401k and/or IRA you'll save a chunk of tax and get a leg up on a retirement plan. You might still be able to contribute to an IRA for tax year 2018 and then for tax year 2019, same with 401k if your plan allows. Before April 15th this year.)

Good luck in Phoenix, hope you like roasting.

Last edited by Hotscot; Feb 23rd 2019 at 11:31 pm.
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Old Feb 23rd 2019, 11:17 pm
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Default Re: US Tax question, sold UK property

It’s been pretty much 2 years we lived in the house. Moved in Jan 2017.
we moved out to the US while the sale was going through, but there was a delay on the completion date, so it fell into 2019 for the actual completion.
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Old Feb 23rd 2019, 11:22 pm
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Default Re: US Tax question, sold UK property

'It’s been pretty much 2 years'

Yes but it sounds that you lived there from January 2017 until October 2018 and then your primary residence was in Phoenix??
Not two years then...I don't really think you can use 'pretty much' in your tax filings.
Not giving you a hard time but in these sort of things accuracy is paramount.

And you received your profit in 2019? If so I believe my first response still stands.

From the time you bought the house/closed to the time you sold/closed may be two years, and that may be considered a Long Term Capital Gain and reduced tax rate.

Last edited by Hotscot; Feb 23rd 2019 at 11:37 pm.
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Old Feb 23rd 2019, 11:39 pm
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Default Re: US Tax question, sold UK property

Yes we owned the property from January 2017 until 2019. But relocated in October 2018. Where we have rented a property.

we still paid all the UK bills for the property until it was sold. Council tax, heating, water etc... Even though from October 2018 we were not living there. It was going through the sale process.
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Old Feb 23rd 2019, 11:43 pm
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Default Re: US Tax question, sold UK property

That's what I thought...you may be tempted to claim it as your primary residence for two years, but don't go there.
If you were tempted, and I know you've not said anything, it could negatively affect your future status for the rest of your life.
Even if you became a citizen.
Check out what I said about 401k's and IRA's. You can reduce your taxes significantly and set yourself off on a financially secure future.

(My opinion.)

Last edited by Hotscot; Feb 23rd 2019 at 11:46 pm.
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Old Feb 23rd 2019, 11:53 pm
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Default Re: US Tax question, sold UK property

Appreciate your comments. Really do.
i find it a minefield compared to the UK where you didn’t have to really worry about taxes.
hope this potential extra tax to pay doesn’t hinder purchasing a property over here.
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Old Feb 24th 2019, 12:03 am
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Default Re: US Tax question, sold UK property

Taxes can be really simple over here unless you have investments etc, particularly investments outside the US.
Part of the issue with complexity is that there are so many potential deductions to actually reduce your taxes.
Once you learn to take advantage of them they become very beneficial.
(For example, because I have a business, each time I go to the post office it reduces my taxes.)

Regarding purchasing a property, what will be more important is your debt-to-income ratio and your credit rating, which will be non-existent.
Personally I'd do the rent thing for a while to settle in, build your credit, (They won't care what your credit rating was in the UK, doesn't exist for them), maybe look to buy at the end of the year when sales are slow and you'll get a better deal.
Besides you need to put 20% down if you want to avoid paying mortgage insurance.

In addition, you'd be better making sure you're employment is relatively secure before buying a house.
What Does “At-Will” Employment Mean? | Jaburg Wilk

I came here 20 years ago with a major corporation. Thought that I'd had it made and was invincible.
After a year and a half the economy turned down and I was left a voicemail saying my position had been eliminated and don't come in to the office. Thanks for your service, go back home.

Run my own business now which, ironically, prevents me from moving home to the UK.

Last edited by Hotscot; Feb 24th 2019 at 12:14 am.
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Old Feb 24th 2019, 12:34 am
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Default Re: US Tax question, sold UK property

Wise words again
congrats on starting your own business in the wake of being let go.

yes so many plus points for moving out here for sure, the work at Will is a worry, health care bills is a worry, schooling for our 3 boys is a worry, but we knew as a family we had to take the chance and go for it.

For us us going back to the UK is not an option, we love it here already.

What will be will be.
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Old Feb 24th 2019, 1:22 am
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Default Re: US Tax question, sold UK property

Good man!
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Old Feb 24th 2019, 11:18 am
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Default Re: US Tax question, sold UK property

You almost certainly have a substantial US taxable foreign currency gain for 2019 on repaying the mortgage. As you have engaged Deloitte to act for you; I'd discuss this with a CPA or EA at Deloitte.
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Old Feb 24th 2019, 11:50 am
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Default Re: US Tax question, sold UK property

Originally Posted by Cook_County View Post
You almost certainly have a substantial US taxable foreign currency gain for 2019 on repaying the mortgage. As you have engaged Deloitte to act for you; I'd discuss this with a CPA or EA at Deloitte.
Is this true in the case, OP purchased on Jan 2017, when the exchange rate was slightly lower that it is was in Jan 2019 - The repayment of the mortgage in 2019 in USD was higher than it was in 2017, meaning a foreign currency loss?

For the OP, this article explains the impact of exchange rates on the repayment of a foreign mortgage, this one which illustrates a foreign currency loss.
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