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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I have been on back to back assignments with my employer since

Resolved Question:

I have been on back to back assignments with my employer since 2003. Iwas in Spain from 2003 - 2006 and have been here in the US since 2006.   I am now going to localise in the US and need to sell my property in the UK to buy a home here - will capital gains be levied
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello kshand,

The sale of your home in the UK will be taxed the same as if you sold property here in the United States.

If the home you are selling in the UK qualifies to be treated as your primary residence, then you would be allowed to exclude $250,000 (or $500,000 if married filing a joint return), from any gain you had from the sale. In order to qualify as your primary residence, you must have owned the home for at least 2 years and you must have lived in the home for at least 2 of the last 5 years preceeding the sale.

So it would depend on just exactly you moved out of that home and when you sell it as to whether or not you will meet the use test of having lived there for 2 of the last 5 years.

If you cannot meet the rules which qualify this to be your primary residence, then any gain you have from the sale would be taxed as a long term capital gain, and that tax rate is currently capped at 15%. Using the sale proceeds to purchase another home here in the US or anywhere else would not reduce or eliminate this tax.

You would, however, be allowed a credit for any tax which you also might have to pay to the UK on the sale of this property.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you kshand.

Merlo and other Tax Specialists are ready to help you
Customer: replied 7 years ago.

So in the UK I am excluded due to the fact that the reason I have been out the house is due to my employer and being assigned to positions in other countries and this is the sole property I own as I have rented in the US till now. If I understand it well there are no such exclusions and I will have to pay the 15% on gain even though the gain is likely to be only around 100,000 GBP. The intention is to use the gain as a deposit to purchase a home in the US.

 

Is there no right of appeal or any exclusions ?

Expert:  Merlo replied 7 years ago.
Hello again kshand,

Years ago, the IRS used to allow taxpayers who sold their primary homes to reinvest the sales proceeds in to another home, and in doing so they deferred any tax which was due.

Those rules changed quite a number of years ago, and were replaced with the $250,000 exclusion. The exclusion only applies to the sale of your primary residence, and does not apply to any other properties such as a vacation home or rental properties.

In order to qualify as your primary home, you must meet both the ownership and use tests that I mentioned earlier. The only exception at all that is allowed is if you purchase a home and then you are forced to sell it before having owned it for 2 years, if the reason for the forced sale was due to job relocation or medical reasons. In such a case, you would be allowed to exclude a prorated portion of the $250,000.

But there are no exclusions allowed at all for the use test. Once you have owned the home for at least 2 years, you must then also satisfy the use test by actually living in that home for at least 2 of the last 5 years preceeding the sale. I suppose the IRS view on this is that if you moved out of the home 3 years ago, that would have been adequate time to sell the property and still claim the exclusion. Because of that, they do not allow any longer of a time frame for the sale of the home and have it still qualify for the exclusion.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you kshand.