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My husband and I are resident in California. We recently ...

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My husband and I are...
My husband and I are resident in California. We recently relocated here from London, UK. We are looking to sell a property we own in France. This is not our primary residence although it was about 5 years ago. We would like help with the following: (i) will Capital Gains Tax (CGT) be payable on this? (ii) if so, how much would this be? (iii) is there anyway to offset our gain? The property is in my husband''s name solely. He is currently paying higher rate tax and I am unemployed.
Submitted: 9 years ago.Category: Tax
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4/2/2008
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Dear averil,

What is your immigration status in the United States?

 

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Customer reply replied 9 years ago
My husband is on a L-1 Visa and I am on a derivative L-2 visa. We plan on being resident in California for at least two years.
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago

Dear averil,

Two more questions please:

Please verify that you are UK citizens?

How many days this year and last year, have you been resident in the U.S.? (seperately). If you have been resident in the U.S for 5 years please indicate that)

 

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Customer reply replied 9 years ago
I am a UK citizen. My husband is an Irish citizen.

We have been resident in US for only 7 days this year (just relocated!). Therefore zero days last year and we have not been resident for 5 years.

Although, I don't think this will make a difference, my husband was resident in the US for 2 years from 2003 - 2005 under a student visa.
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago

Dear averill,

thank you for your information.

Until you are present in the U.S. for 183 days, you will not be taxed as U.S. Citizens. However, after 183, days, by tax treaty between the U.S. and the UK (including ireland), and France, after 183 days you are taxed as U.S. citizens.

this means that your world wide income is reported to the U.S., based on your status in the U.S. at the end of the tax year, irrespective of when the actual sale of the property occurred.

By tax treaty, inlcuding the tax treaty between the UK and France, and thorughout the EU, France iwll have first claim to any taxes derived from capital gains.

Followed by the U.S. and then the UK.

However it flows like this:

Even though you will have to report the capital gains in each country by individual country rules, each country, because of the tax treaties must give you a tax credit for taxes paid to another jurisdiction.

So the U.S. will give you credit for taxes paid to France, and the UK will give you credit for taxes paid to France and the U.S. on your world wide income.

Because of this venue and the complicity of a three country tax situation, I am not going to be able to give you anyting other than what we call in the U.S., a Ball Park Figure for what your capital gains will be.

In my corporate experience, the company that has brought you here on an L-1 Visa should be providing free tax consulting for you, and the company retained by your company, (PWC, Earnst & Young, etc) would be able to give you a more accurate prediction. If your company is not providing these services to you, then I recommend you see your supervisor and HR manager about getting this service.

In the mean time, i will provide a basic capital gains picture for you, which as i said will only be ball park.

The figures will be coming in the next response.

Can you tell me this?

1. How much did you pay for the property when you bought it?

2. Is it privately held or did you form or join an organziatin to buy it?

3. Was it used as a rental?

4. Where in France is it located?

5. What is its Fair Market Value now? (what do you expect to sell it for?)

6. Do you have an approximate figure for your improvements and major repairs?

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Customer reply replied 9 years ago
Dear Ed

Many thanks for your detailed response to a tricky situation. I will certainly suggest my husbands speaks with his company about tax planning.

In reply to you questions:

1. The purchase price was 110,000 euros (current mortgage left to pay 90,000 euros)

2. Privately held

3. It has been rented out for the past 4 years

4. It is located in Nantes, Brittany

5. Fair market Value is 240,000 euros

6. The Property needed very little improvement but we did spend 1,000 euros on new carpets.

Thanks

Averill
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago

Dear Averill,

Based on the information you provided, your capital gains for France should be in the ball park of:

The basic rules in france are:

1. You can increase the purchase price (in the U.S. we call it the cost basis) by adding the expenses of making the initial purchase and the improvements.

Purhase price then = 111,000 Euros.

FMV = 240,000 Euros

Capital gains = 240,000 - 111,000 Euros = 129,000 Euros.

You are entitled to a 1,000 Euro deduction = 128,000 Euros.

capital gains plus certain social taxes = 26% or 33,280 Euros capital gains tax.

U.S. by the end of 2008, you will have spent 183 days or more in the U.S. so you will be subject to U.S. Capital gains. however, the U.S. capital gains is only 15% with no other taxes, so you will owe no further taxes in the U.S.

the UK exempts capital gins on foreing held properties.

NOTE: You may be able to take advantage of your UK citizenship to take a more favorable 16% capital gains rate as a non-french resident of the EEC. However it is unclear if this will hold true if you become a U.S. Resident.

NON-EEC member will have to pay 33% capital gains tax.

SO: as a French Resident.....capital gains is 33,280

As an EEC resident, not French: capital gains = 20, 480 Euros

AS a residnet of anyother community including the U.S: 42,240 Euros.

My advice: Try to file as an EEC member resident based on your UK Citizenship.

 

 

 

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Customer reply replied 9 years ago
Dear Ed

Many thanks indeed for your assistance with this. Your advice makes good sense and we will also be contacting my husbands HR dept to arrange some tax planning.

Many thanks again

Averill
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