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Yet another uk house sale thread

Yet another uk house sale thread

Old May 14th 2012, 7:01 pm
  #16  
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Default Re: Yet another uk house sale thread

[QUOTE=Timberwolf0122;10059789]You cannot be serious? Really? You'd think it would be on the selling price - remaining mortgage.
QUOTE]

Well it does sort of work like that because if the movement in exchange rates hurts you on the mortgage, it will help you on the house sale (and vice-versa). The problem is if you actually realize a loss on one and a gain on the other you can't offset them, assuming the house was not a rental property. That's because "personal" capital losses are not deductible but "personal" capital gains are taxable - even if they are as closely related as a house and its mortgage payment.
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Old May 14th 2012, 7:15 pm
  #17  
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Default Re: Yet another uk house sale thread

Originally Posted by Timberwolf0122
You cannot be serious? Really? You'd think it would be on the selling price - remaining mortgage.

Why even take currency fluctuations into account? After all even if the effective debt has been reduced so has any money that might be realized from the sale.

[bangs head on table]

So just noticed October will be my 5th year in the US (Time flies) if I delay the sale till then would that mean that the UK would put me in the >5 years out the country no-longer eligible for UK CGT? Because that would be one less head ache!
Ignore his post. Currency exchange rates only value the home on a purchase and a sale and no other times and has nothing to do with a mortgage.

For example, even if I purchase a foreign stock with borrowed foreign money, the interest I pay can be deducted as an expense but when the stock is sold, the gain is on the sale price in US$ as compared to the purchase price in US$. The loan does not have anything to do with the IRS other than the interest deduction.
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Old May 14th 2012, 7:32 pm
  #18  
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Default Re: Yet another uk house sale thread

Thanks Michael and thanks to everyone else for answering my questions, I really appreciate it.
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Old May 14th 2012, 8:45 pm
  #19  
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Default Re: Yet another uk house sale thread

Originally Posted by Michael
Ignore his post. Currency exchange rates only value the home on a purchase and a sale and no other times and has nothing to do with a mortgage.

For example, even if I purchase a foreign stock with borrowed foreign money, the interest I pay can be deducted as an expense but when the stock is sold, the gain is on the sale price in US$ as compared to the purchase price in US$. The loan does not have anything to do with the IRS other than the interest deduction.
Actually, see Revenue Ruling 90-79. The IRS believes that a mortgage denominated in a foreign currency is a taxable asset - even though it's actually a liability. I believe it's actually the deemed exchange of foreign currency at the inception and payoff of the mortgage that triggers the gain, rather than the mortgage itself - but the result is the same.

Link: http://www.andrewmitchel.com/charts/rr_90_79.pdf
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Old May 14th 2012, 10:44 pm
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Default Re: Yet another uk house sale thread

I sold my UK house (well my share anyway but it's handled the same way) and even though I made a profit in GBP I made a 'loss' in USD due to the xrate fluctuations between 2006-2011. The mortgage has nothing to do with it, you've paid tax on it (or at least you should have unless you've not reported income. Its sale price in USD minus purchase price in USD i.e. the profit or increase in value since buying it.

I was fortunate in that I was able to sell when I'd lived in the house more than 2 out of the last 5 years so no tax was due for me.

Good luck.
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Old May 14th 2012, 11:05 pm
  #21  
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Default Re: Yet another uk house sale thread

Originally Posted by trirod
Actually, see Revenue Ruling 90-79. The IRS believes that a mortgage denominated in a foreign currency is a taxable asset - even though it's actually a liability. I believe it's actually the deemed exchange of foreign currency at the inception and payoff of the mortgage that triggers the gain, rather than the mortgage itself - but the result is the same.

Link: http://www.andrewmitchel.com/charts/rr_90_79.pdf
If you read that very closely, he paid $95,000 (converted from 95,000y at 1:1) and sold it for $150,000 (converted from 142,000y at 0.95:1.00) for a gain of $55,000. However he complicated the issue by taking about paying off part of the mortgage with the proceeds which had no tax effect and just created confusion.
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Old May 15th 2012, 8:38 pm
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Default Re: Yet another uk house sale thread

I get that nobody wants to conceive that you can have a gain on a mortgage in a foreign currency, but that's exactly what can happen. Here's an extract from a KPMG write-up on expats coming to the US and selling their house:

A citizen of the United Kingdom comes to the U.S. on a three-year assignment and decides to leave his principal residence in the U.K. vacant. He purchased his home in the U.K. several years earlier and acquired a mortgage from a British bank. Eighteen months into his U.S. assignment he decides to sell his principal residence in the U.K. U.S. tax law states that he will be subject to U.S. tax not only on the sale of his home but on any currency exchange gain when he repays his foreign mortgage.

As an example, assume at the time of purchase, the purchase price of the mortgage is £200,000 and the exchange rate is $1.70 = £1. Assume also, that at the time of sale, the exchange rate is $1.40 = £1. At the time of sale, there will be a $60,000 gain on the disposition of the mortgage (independent of whether the property itself was sold at a gain or loss) calculated as follows: the mortgage at the purchase date is £200,000 x 1.7 = $340,000. The mortgage at the sale date is £200,000 x 1.4 = $280,000. Thus, the seller has paid off a $340,000 initial mortgage with $280,000 due to the difference in the exchange rates, resulting in a $60,000 gain, which will be taxed at ordinary income tax rates.


Full link: http://us.kpmg.com/microsite/tax/ies.../article05.htm

Admittedly I don't think many IRS agents would pick up on that issue, but it's right there in the code.
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