# CGT Mortgages with FX USD gains



## Lulu1002 (Jan 16, 2019)

Question regarding FX "gains" that we need to consider on a GBP mortgage on the property in the U.K. we are selling, in regards to capital gains tax we are liable for in the US. 

The property being sold is our primary residence.

A) Do we need to consider the initial USD value of the mortgage when we purchased the property (compared to the value of the mortgage in USD at the sale) to calculate if there is any USD gain
or 
B) the value of the mortgage in USD when We became US tax resident (compared to the value of the mortgage in USD at the sale) to calculate if there is any USD gain.

Due to the significant swings in GBP/USD over the past few years - we want to be clear on this. 

Thank you for your help!


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## Bevdeforges (Nov 16, 2007)

You may be making a little too much of this. For determining your capital gains on the property itself, you normally compare the initial buying price (at the exchange rate in effect at the date of purchase) to the selling price (at the exchange rate in effect on the date of sale). 

IRS Publication 523 goes into detail on the subject but you may want to have a look here first https://www.irs.gov/taxtopics/tc701


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## Lulu1002 (Jan 16, 2019)

Bevdeforges said:


> You may be making a little too much of this. For determining your capital gains on the property itself, you normally compare the initial buying price (at the exchange rate in effect at the date of purchase) to the selling price (at the exchange rate in effect on the date of sale).
> 
> IRS Publication 523 goes into detail on the subject but you may want to have a look here first https://www.irs.gov/taxtopics/tc701


Thanks @Bevdeforges for your comment I’ll check out the IRS publication. I have read in several places that the mortgage gain via FX swings can be taxable though, so I’m surprised you say it’s not


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## SoCal85 (Jan 14, 2019)

The FX gain/loss on the property itself is imbedded into the gain/loss calculation of the property. But to be super technical, the rules view the repayment of the mortgage as a separate IRC Section 988 transaction in which you need to compute fx gain/loss on, even if it's personal. 

The rules are also unfavorable for individuals since FX gains in excess of $200 are taxable, whereas if the transaction resulted in a FX loss they are disallowed.

Normal CPAs usually won't even bother or know to compute this. I've gone through audits involving foreign property and have yet to see an IRS agent knowledgeable enough to apply these rules also. I guess its luck of the draw though. If you have a CPA that specializes in International Tax they probably would compute it and include any fx gain to be conservative. To answer your question though, I did research on this a few years ago and I believe I went with A for another client (historical basis for when you first purchased the property). However, it's been awhile and I cant say it with 100% confidence unless I go back through the code/regs.


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## Bevdeforges (Nov 16, 2007)

Thank you for that info, SoCal85. As you say, the FX gain/loss is imbedded into the overall gain/loss on the sale of the property. Unless you're talking about properties worth in the millions ($ or GBP) I'd try and keep the gain/loss calculation as simple as possible. Hang onto your notes as to how you've calculated it, just in case, and see how things go. Very often, a good faith effort to meet the requirements without getting too complicated will work when filing from overseas.


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## Lulu1002 (Jan 16, 2019)

Thank you very helpful. Seems it’s a grey area but trying to understand any potential liability. I’ll try to get clarity on the timing. 



SoCal85 said:


> The FX gain/loss on the property itself is imbedded into the gain/loss calculation of the property. But to be super technical, the rules view the repayment of the mortgage as a separate IRC Section 988 transaction in which you need to compute fx gain/loss on, even if it's personal.
> 
> The rules are also unfavorable for individuals since FX gains in excess of $200 are taxable, whereas if the transaction resulted in a FX loss they are disallowed.
> 
> Normal CPAs usually won't even bother or know to compute this. I've gone through audits involving foreign property and have yet to see an IRS agent knowledgeable enough to apply these rules also. I guess its luck of the draw though. If you have a CPA that specializes in International Tax they probably would compute it and include any fx gain to be conservative. To answer your question though, I did research on this a few years ago and I believe I went with A for another client (historical basis for when you first purchased the property). However, it's been awhile and I cant say it with 100% confidence unless I go back through the code/regs.


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