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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28947
Experience:  Taxes, Immigration, Labor Relations
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US tax implications of selling UK house

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I moved from the UK to the US a year ago and now have a greencard. I am selling my house in the UK and I understand that for UK tax purposes, I will owe no capital gains on the gain on the sale of the property as it was my principal residence for over 5 years. My question is, as the gain is exempt from UK tax, how do I report it on my US tax return, will the entire gain be subject to US tax or exempt from tax in the US? Thank you.


LEV :

Hi and welcome to Just Answer!
In the US you may exclude from taxable income the capital gain realized from the sale of your home - if the property was owned and used as your primary residence at least two out of last five years - you may exclude up to $250,000 (for single person) from taxable income.
See IRS publication 523 - www.irs.gov/pub/irs-pdf/p523.pdf
The capital gain is calculated as (selling price) - (adjusted basis).
The basis is mainly your purchase price which should be adjusted by all improvement expenses over the time you owned the property.

Customer:

Hi, thanks for the quick reply. I thought the $250,000 exclusion only applied to the sale of a US property though? Will it apply to the sale of UK real estate also?

LEV :

According to the law, only if you used the property as a main residence for at least two years out of last five years before the sale - he may exclude the gain up to $250,000 from taxable income (500,000 for married couples). There is no requirement for the property to be located in the US only. I am not sure where you got your information?

LEV :

The exclusion is based on section 121 - see here - http://www.law.cornell.edu/uscode/text/26/121
You may verify requirements - as long as that is your primary residence - it may be located anywhere in the world.

Customer:

Its just what I thought from doing some research - I must have been wrong! I was just concerned that maybe different rules applied to sales of foreign property. And the gain over the $250,000, it would be long term capital gain (I have had the house over 10 years)? Thank you

LEV :

Yes - if your gain is more than $250,000 - the rest will be taxed as long term capital gain - at reduced tax rate - currently not more than 15%.

Customer:

OK, I understand, thank you for your help. I was hoping that the gain wouldn't be taxed in the US as it won't be taxable in the UK! But thanks for your help. And thanks again for the very quick reply.

LEV :

See IRS publication 523 - www.irs.gov/pub/irs-pdf/p523.pdf - pages 19-25 with example how to report such sale.

Customer:

Great. Thank you.

LEV :

You are welcome.

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