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rjm_cmyk

Paying tax when selling UK residence

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I learnt today that Uncle Sam is really diligent when assessing tax due on sale of overseas property.

Apparently the IRS can assess gain on the repayment of your mortgage if you benefited from an exchange rate variation between when you took out the loan and when you repaid it.

e.g

You took out an initial interest only loan for 100K UKP back in 2000 when the exchange rate was 1.65 dollar to pound = $165K (for US taxation purposes)

When you repaid the 100K loan the rate was 1.45 so you only had to repay $145K

As far as IRS that equals a $20K profit and as such taxable

More at http://www.taxadvisorypartnership.com/blog/us-tax/foreign-mortgage-exchange-rate-gain/

Happily open to correction.......


Richard

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I learnt today that Uncle Sam is really diligent when assessing tax due on sale of overseas property.

Apparently the IRS can assess gain on the repayment of your mortgage if you benefited from an exchange rate variation between when you took out the loan and when you repaid it.

e.g

You took out an initial interest only loan for 100K UKP back in 2000 when the exchange rate was 1.65 dollar to pound = $165K (for US taxation purposes)

When you repaid the 100K loan the rate was 1.45 so you only had to repay $145K

As far as IRS that equals a $20K profit and as such taxable

More at http://www.taxadvisorypartnership.com/blog/us-tax/foreign-mortgage-exchange-rate-gain/

Happily open to correction.......

Were you a LPR back in 2000? You are dealing with the dreaded capital gain issue. My wife had property that she purchased in 1998. She became a LPR in 2011 and tus subject to US taxes on selling the property. SHe is only responsible for teh gain from when she became a LPR to when she sold it. Try figuring out what a property is worth in 2011 in Kazakhstan where there are no appraisers. This is also like inheriating property from a dead relative. Your basis for the capital gain is the fair market value when you inheriated it, not what the relative paid for it. So you need to determine the fair market value of the property in USD at the time you became subject to US tax laws and then compare the amoount received when sold--declare that amount as a capital gain on the sale of the property.

The IRS is just looking at the price paid for an asset, in USDs, verses the amount received at the sale of that asset, in USDs. The difference between those amounts is a capital gain or capital loss. SInce a LPR or USC is on the hook for world wide income, any property or assets sold is subject to US tax laws. Yes, they include any reduction in a loan or any other debt as "income". I would deterine the exchange rate at the time you were subject to US tax laws and use that as your basis instead of going all the way back to 2000.

Weclome to the joys of having to file a US income tax and deal with the IRS.

Dave

Edited by Dave&Roza

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The capital gain on the overall value of property is a different issue. That is covered for most people by the CG allowance in the US. The IRS also appears to be looking at CG when there is a beneficial difference in forex rates when you repay any loan. This is quite distinct from the CG on property value.

According to the IRS website bequests and inheritances are not subject to income tax assuming any CG has been settled by the giver or their estate.

All this of course at the interpretation of the tax authorities :-)


Richard

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The capital gain on the overall value of property is a different issue. That is covered for most people by the CG allowance in the US. The IRS also appears to be looking at CG when there is a beneficial difference in forex rates when you repay any loan. This is quite distinct from the CG on property value.

According to the IRS website bequests and inheritances are not subject to income tax assuming any CG has been settled by the giver or their estate.

All this of course at the interpretation of the tax authorities :-)

Yes it is different then a CG on property, but it is like a CG on the sale of stock. You purchase a stock for $100K after 8 years sell it for $125K, so the CG is $25K. Now let's say you as a UK citizen purchase a stock for $!00K and then at some point later become a LPR subject to US tax laws. What is the basis--the value you use to calculate the GC on--if when you became a LPR the stock is now worth $150K? Is the basis the original $100K or is it $150K because you "purchased" the stock as a LPR at $150K? To be safe and avoid any trouble from the IRS you claim $100K. I think it should be $150K because the gain from $100K to $150K was subject to UK tax laws and once you became a LPR of the US you can recharacterize the stock as of the date you become a LPR. This is what happens to inheritances as their basis is to the value on the date of death of the owner unless it is a weekend then it is the average of the price on the Friday before the death and the Monday after the death.

So I would move your basis to the date you became a LPR and pay any CP on the value from tehat date to when you repaid the load.

Dave

Edited by Dave&Roza

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Yes it is different then a CG on property, but it is like a CG on the sale of stock. You purchase a stock for $100K after 8 years sell it for $125K, so the CG is $25K. Now let's say you as a UK citizen purchase a stock for $!00K and then at some point later become a LPR subject to US tax laws. What is the basis--the value you use to calculate the GC on--if when you became a LPR the stock is now worth $150K? Is the basis the original $100K or is it $150K because you "purchased" the stock as a LPR at $150K? To be safe and avoid any trouble from the IRS you claim $100K. I think it should be $150K because the gain from $100K to $150K was subject to UK tax laws and once you became a LPR of the US you can recharacterize the stock as of the date you become a LPR. This is what happens to inheritances as their basis is to the value on the date of death of the owner unless it is a weekend then it is the average of the price on the Friday before the death and the Monday after the death.

So I would move your basis to the date you became a LPR and pay any CP on the value from tehat date to when you repaid the load.

Dave

That's the first time I've heard anyone suggest that.

I'd be interested to see if you have any evidence that doing as you suggest is acceptable to the IRS.

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