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I'm a UK national who is a permanent resident in US. I have…

I'm a UK national...

I'm a UK national who is a permanent resident in US. I have a question about selling a property overseas. Can you help?

Accountant's Assistant: The Expert will know how to help. Please tell me more, so we can help you best.

I'd like to know where I stand with capital gains tax when I sell my UK property

Accountant's Assistant: Is there anything else the Expert should be aware of?

Probably lots. But hopefully that gives you an idea what I'm looking for

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Answered in 5 minutes by:
9/1/2017
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,865
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi. My name is ***** ***** I will be happy to help you.

As US person (citizen, resident, certain visa holders) you are required to report your worldwide income. You will report the sales proceeds on form 8949 (extension of Schedule D) but you can deduct your expenses, so called basis. This includes purchase price, any improvements and expenses of sale. In your case you will also be able to claim credit for taxes paid to UK government in connection with the sale and title transfer.

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Customer reply replied 10 months ago
Can you help me calculate an estimate of what I am likely to pay?

Sure. What are you selling? And what is the estimated gain after deducting your expenses (except taxes)?

emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,865
Experience: IRS licensed Enrolled Agent and tax instructor
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Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,610
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Phone call session started

Hi Jason,

Following up on our conversation here is a few links you may find helpful.

Private Residence Relief - UK

https://www.gov.uk/tax-sell-home

https://hodgen.com/property-you-acquired-before-coming-to-the-usa/

In several cases, the Tax Court has determined the adjusted basis of property acquired by a U.S. taxpayer outside the U.S. before becoming a U.S. resident. The court has assumed as the starting point the taxpayer’s appropriate basis under U.S. tax principles. Compare Gutwirth v. Comm’r, 40 T.C. 666 (1963) (1939 Code) and Benichou v. Comm’r, T.C. Memo 1970-263 (taxpayer’s basis was initial cost) with Reisner v. Comm’r, 34 T.C. 1122 (1960) (taxpayer’s basis was fair market value upon inheritance). In general, the taxpayer’s cost basis for purchased property has been determined to be the initial expenditure in the foreign jurisdiction.n5 See Heckett v. Comm’r, 8 T.C. 841 (1947).

https://ballotpedia.org/Tax_policy_in_New_York

A capital gains tax is a tax levied on the profit gleaned from the sale of a capital asset. Examples of capital assets include stocks, businesses, land parcels, homes, personal items and more. Capital gains are taxable at both the federal and state levels. While the federal government taxes capital gains at a lower rate than regular personal income, states usually tax capital gains at the same rates as regular income. In New York, the uppermost capital gains tax rate was 8.8 percent. The combined uppermost federal and state tax rates totaled 31.5 percent, ranking second highest in the nation.

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Customer reply replied 10 months ago
Thanks Chad, very helpful. The above mentioned NY state tax on capital gain. However I think you said this would not apply as the property was outside US (or NY). Please confirm this? Thanks.
Customer reply replied 10 months ago
Hi Chad - another question:
- Looking at some of these articles, it seems I should calculate the cost of buying the house in dollars, using the exchange rate at the time of purchase, and then deduct the price at the time of sale using the current exchange rate. Is this correct?
Thanks, Jason.
Customer reply replied 10 months ago
Hi Chad. Just doing some further research and it seems we can calculate the gain based on the value at the point when we first rented the house out - not the original purchase price. This would make a big difference. Please see the attached and let me know if you agree with this?
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,364
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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I received notification that you requested a new expert.

To answer your most recent question,

When property is converted from personal property/resident to rental property,

When the property is sold the basis is calculated differently for gain or loss.

When the property is sold at a gain the basis is the original cost plus amounts paid for capital improvements, less any depreciation taken.

When sold at a loss the starting point for the basis is the lower of property original cost or the FMV at the time it was converted from personal to rental property.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 10 months ago
Thanks Barb - that's very helpful. Can you confirm the tax rate (federal and NY state) to use for the gain? My annual income is around $300k.
Customer reply replied 10 months ago
Am I doing something wrong, as my follow-on questions don't seem to be answered

You're not doing anything wrong. I've been at my office since early this AM. I will respond to you shortly.

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The federal capital gains tax rate can be found at the following link:

https://www.fool.com/retirement/2016/12/16/capital-gains-tax-rate-for-2017.aspx

Look for your filing status.

Please keep in mind that capital gains tax applies to GAIN, not selling price.

In New York, like most other states, state capital gains are taxed at your ordinary state income tax rate. The uppermost capital gains tax rate is 8.8%.

https://ballotpedia.org/Tax_policy_in_New_York

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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