# US Capital Gains Tax on UK House Sale



## Dean11 (Feb 17, 2011)

I've read a few threads on this subject but I'm not sure what my status is in this regard and need some help.

My employer is relocating my wife and family to the USA on an L-1B non-immigrant visa. We are all UK citizens.

We have a 2 week trip booked in March for house hunting at which point our visas will be activated. We will then return to the UK to wait for the sale of our UK house before finally moving to the US at the end of May/start of June.

I have four questions:

1. It sounds like once our visas are activated we will be liable for US capital gains tax from that point onwards, can anyone confirm that? 

2. If we sell our UK house before our final move in May/June are we still liable for US capital gains tax since our visas would already be active?

3. I have read elsewhere that if you are in the USA for less than 183 days in a tax year then you do not meet the substantial presence test and you are only liable for US-based income, not UK-income such as a house sale, so I was wondering if we delayed our final move to July then would we avoid any capital gains tax on the sale of our UK house.

4. Presumably if we sell our UK house after our final move in May/June then there is definitely a US capital gains tax to pay since we would be living in the US before the UK house sold.

The proceeds of the UK house sale will be used to purchase a house in the US if that makes any difference.

Thanks, hope someone can help.


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## Bevdeforges (Nov 16, 2007)

The tax law in the US changed a few years back so that you can exclude the capital gains on the purchase of your primary residence up to $500,000 for a married couple filing jointly. Unless you're planning on realizing that sort of a gain, you probably have little or nothing to worry about.

There are also a number of tricks (all perfectly legal) to raise the basis of your house before you calculate any gain on sale. Includes certain types of expenditures to prepare the house for sale. 

If the potential gain you're looking at is under the $500,000 then you don't have to worry about the rest of your questions.
Cheers,
Bev


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## Dean11 (Feb 17, 2011)

Hi Bev,
Thanks for the reply. Is the capital gain calculated as the selling price minus the original purchase price?

We bought our house in the UK 8 years ago for $450,000, the estimated selling price now is $540,000, so is the total capital gain $90,000 or the full selling price of $540,000.

If it is the former it sounds like we have nothing to worry about, if it is the latter then would we would need to declare it and file our tax return jointly to make use of the $500,000 married couple exemption limit.

We intend to buy a house in the US for the same price as our house sells in the UK, so there will be no net gain overall.

Thanks,
Dean


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## Bevdeforges (Nov 16, 2007)

Hi Dean,
There is no longer the requirement that you re-invest the proceeds from the sale of the old house in a new house. (Used to be you just "deferred" the payment of capital gains until you ultimately disposed of a house to go into a retirement home.)

Anyhow, the capital gain is basically the selling price less the "adjusted basis" in the property. The basis is your buying price plus capital investments in the property while you owned it (additions, certain kinds of remodeling that add to the value of a house) and some "fix-up" costs in the months just prior to the sale. (Check the IRS website for the publication on sale of a residence for the details of what's allowed.)

So, given the figures you've stated, you have nothing to worry about except maybe filling out the paperwork when the time comes.
Cheers,
Bev


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## NHuyer (Feb 28, 2011)

Hi
We are in a similar situation regarding a house not yet sold in Denmark and getting very close to moving to the USA. Does the 500,000 rule apply for all countries or will it differ since we are located in Denmark.

Also we have a question regarding inheritance. In Denmark since we are married we basically own everything 50/50 even though not everything has both names on it. I understand that once we move to the US we need to put everything into both names or we might have a problem with inheritance tax in the event something happens to one of us.

I would like to know if we make a prenup that says everything is jointly owned will this be sufficient for the us or do we need to go back and put everything in both of our names.

thanks


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## Bevdeforges (Nov 16, 2007)

NHuyer said:


> Hi
> We are in a similar situation regarding a house not yet sold in Denmark and getting very close to moving to the USA. Does the 500,000 rule apply for all countries or will it differ since we are located in Denmark.
> 
> Also we have a question regarding inheritance. In Denmark since we are married we basically own everything 50/50 even though not everything has both names on it. I understand that once we move to the US we need to put everything into both names or we might have a problem with inheritance tax in the event something happens to one of us.
> ...


Once you are subject to US income taxes, you have to follow all the same rules as the folks who have lived there all their lives. But if you sell your house before you move to the US, it won't affect your US taxes. Once you're in the US as "residents" you fall under all the same rules as the natives.

Inheritance in the US is largely controlled by the individual states, which makes it tricky. Basically, you can set things up however you like with a will, though there are a few minimums you have to respect - usually regarding what you leave to a spouse or children - and this does vary by state.

The other thing is that each state has slightly different rules for what happens if you die intestate (i.e. without a valid will outlining what you want). In most states, there is a form of joint ownership limited to married couples that works even better (for most) than 50-50 ownership. 

Anything you own back in Denmark in the way of "real" property (i.e. land and buildings) will fall under Danish inheritance law should one of you die, so no point changing any of that. 

If you've got concerns, there are lots of "estate planning seminars" and books on the subject available in the US. They even have software programs available so you can write your own will - but if you have enough to be concerned about, it's probably worthwhile to read up a bit and then take an appointment with an attorney to have a proper will drawn up.
Cheers,
Bev


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