Yet another uk house sale thread
 

Hi,
I've been here on an L1B visa for 4 years, I just married a USC in July and now we are thinking of buying a house in Charlotte, nc.
I have a house in the uk i need to sell, I expect to make 35,000gbp off the sale how do I calculate the who/howmuch tax I'll have to pay the uk/us and can one tax be credited against another?? I've searched the forum and if anything I have more questions and doubts than when I started.

Thanks.

Re: Yet another uk house sale thread
 

If you would have sold it 1 year ago, there wouldn't have been any US tax due if it was your primary residence for 2 of the previous 5 years ($250K exclusion for single and $500K for married filing jointly). Since you no longer qualify for that exclusion, the property is consider an investment property and US long term capital gains tax is a maximum of 15% unless Alternate Minimum Tax (AMT) kicks in.

If you pay tax in the UK on the sale, you should be able to offset US tax owed with tax credits from the sale.

AMT can kick in if you have a lot of deductions such as state income tax, home mortgage interest, property tax, etc. (normally more than about $60K for married filing jointly plus income that has preferential tax advantages (ex. capital gains)). Also a significant amount of capital gains alone could trigger but since AMT only reduces the amount of deductions and exemptions, normally it has little effect if you don't have many deductions. If deductions are very high, that can also trigger AMT. The most basic rule for AMT is that you must pay a minimum of 26% tax on your income after an exclusion is taken (about $35K-70K depending on filing status). Normally this doesn't affect moderate income families and doesn't affect higher income families if most of their income is earned income since their marginal tax bracket is above 26%.

Re: Yet another uk house sale thread
 

Thanks for the reply, between the two of us we pull in close to $150,000 so with hat that in mind should I budget About $14,000 in us cgt (25% of 56k)?

On a side note I am selling the house to aunt, so could she give me a cash gift for part of the sale? Being family and all.

Re: Yet another uk house sale thread
 

If you are using the standard deduction, you can get a good estimate of the taxes owed by using the following calculator. First enter your income and calculate the tax and record it. Then add the capital gains and calculate again. The difference should be approximately your capital gains tax.

http://www.dinkytown.net/java/Tax1040.html

I suppose you could do that although that is not 100% legal.

Re: Yet another uk house sale thread
 

Ah well I'm all for loopholes but I don't want to do anything illegal.
Damn tax law, makes it difficult for an honest man to live the dream.

Re: Yet another uk house sale thread
 

Did you do any enhancements to your home? Those are deductible (but not maintainance) from the selling price. When I sold my last home, I deducted about $40K for enhancements.

Re: Yet another uk house sale thread
 

I did spend 5000gbp on a new roof, and 300gbp fixing a leaky chimney.

Re: Yet another uk house sale thread
 

The AMT tax rate is still 15% on long term capital gains, as far as I know, although capital gains can still affect exposure to AMT through phase out of the exemption.

Re: Yet another uk house sale thread
 

You have to do two separate tax computations - one for the UK and one for the United States. If you pay tax in one country you might be able to offset against the other.

And you should seek tax advice on your USA tax calculation. In particular, you may have to convert both the purchase and sale prices into US dollars. This may increase your gain for USA purposes - or eliminate it.

Has your house been rented out? If yes, have you been paying USA tax on the rental income?

As an aside - if you got married last July, then why are you still on an L1-B, normally you should have filed AOS to permanent resident, unless your employer is getting you a green card ...

Re: Yet another uk house sale thread
 

The AMT is on total income so therefore income that is tax preferred can affect the overall taxes paid since deductions are phased out. So you are right, it does not directly affect the capital gains rate otherwise Romney would have paid a very large tax bill instead of an effective tax rate of less than 15%. In the case of Romney, he lost all deductions except charitable donations (10% of his income) and a few other deductions that primarily benefit the rich.

Re: Yet another uk house sale thread
 

Not the leaky chimney since that is maintainance but a slim possibly for the roof if an upgrade was done (ex. tar paper to tile or possibly if a better quality roofing material was used). In other words, if I were to upgrade a deck to be larger or use redwood instead of the original pine, those are probably deductible. There are gray areas in the tax code as to what is an upgrade. Also maintainance is deductible if it is done in preparation for sale (usually work must be done less than 6 months prior to the sale).

If both of those were done when you were renting it out, they should have been deducted then since maintainance is normally deductible on rental properties.

Re: Yet another uk house sale thread
 

The house has not been rented, I've just "kept the lights on" and let the odd family member ( my brother travels a lot around the world and place is nicely located then going from Portsmouth to heathrow).

I did put velux windows into the roof which made the attic much more useable, and my understanding of the us uk tax treaty is if I pay tax on the sale of an asset to the uk it can be offset against the us.

One other thing I did some more googling and the uscalculate the cg as the purchase price converted to usd minus the sale price converted to usd, is that right? If so then this might not be too bad as I bought it out from my ex in 2005/2006 and the exchange was at 1.8 then.

I'll admit I was a little peeved at this cgt thing as I wanted to use the money to buy someland and do a new construction but with capital gains it is going to make it difficult to reach 20% down payment on the construction loan (thank you subprime fiasco).

Re: Yet another uk house sale thread
 

Oh and I'm midway though the who green card thing, I have my second biometric in a few weeks.

Re: Yet another uk house sale thread
 

Do you have a mortgage on the UK house?

Liabilities in foreign currencies are subject to tax in the US when that liability is paid off, so if the exchange rate has dropped since you bought the house you may have a capital gain on that.

Example - take out a mortgage of GBP 100,000 when GBP1=USD1.60. Pay mortgage off when GBP1=USD1.50. Your loan went from $160,000 to $150,000 without even making any payments on it so you have a gain of $10,000.

Aren't taxes fun?

Re: Yet another uk house sale thread
 

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!

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.

Re: Yet another uk house sale thread
 

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.

Re: Yet another uk house sale thread
 

Thanks Michael and thanks to everyone else for answering my questions, I really appreciate it.

Re: Yet another uk house sale thread
 

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

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.

Re: Yet another uk house sale thread
 

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.

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.