# property sale taxes



## damianociambellano (Dec 11, 2014)

my story in a nutshell:
born in Italy, moved to the us at age 23, got married, became citizen, 6 years later i moved to UK with my wife to get a PhD, bought a house.
the issue:
we've always filed taxes in April to IRS. Due to the fact that we both make less than the threshold set to pay taxes in the us, we never paid them. Last year we bought a house worth about 330k$ with a mortgage.
I also own a property in Italy that my parents bought under my name many years ago (15 years ago), before I even moved to the us and gained citizenship. The property has been rented and they have been taking the proceeds,. I've never reported the existence of this house in Italy mainly because i wasn't really involved in it (buying it, renting it out, taking care of it etc), they have bought it for me as investment in the future, but the profits from renting it have always been theirs (rightfully so).
the question:
what will happen when eventually one day i move back to us and sell both properties? on the house in uk i will probably pay taxes on profit made (not sure there is a threshold there as well), but for the one in Italy, will I have to pay taxes on profits made from rental in the past 15 years, on top of profit made from the sale itself ? 

any idea? 

thank you
damiano


----------



## _shel (Mar 2, 2014)

Stamp duty in the UK has nothing to do with earnings. Its based on the value of the house and you pay even if you have no income. 

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


----------



## damianociambellano (Dec 11, 2014)

i'm referring to taxes owed to IRS due to being a US citizen living abroad and having to report worldwide income to IRS.


----------



## Bevdeforges (Nov 16, 2007)

On the UK house, you'll get to avoid taxes on the first $250,000 of profit on the sale ($500,000 if your wife is a US citizen, too, and you file jointly) as long as it has been your primary residence (i.e. home) for at least two out of the last 5 years. (Check that last bit when the time comes, but I think that's the rule.) It's publication 523 from the IRS if you want to start reading up on it - but I believe it says that if your gain on the house is less than the threshold for reporting, you don't even report the sale. (OK, that's what they told me when my parents sold their house to move into assisted living.)

On the Italian house, I'd be inclined to simplify things to the extent possible when and if the time comes. Since you actually were "gifted" the house, there is a case to be made that the basis on the property is zero, anyhow. And, that your parents are getting the rental income from it now, it's probably more an issue for them about reporting the rental income than for you. This is one of those things where the IRS won't get the details unless you tell them about it - and I suspect when that house is sold, you'll want to show it as a two-way "gift" of some sort. Which will simplify the taxes (for the US anyhow) considerably.
Cheers,
Bev


----------



## damianociambellano (Dec 11, 2014)

thanks bev.. yes they have been paying taxes on rental income already in italy..
we'll see when the time comes then.

cheers]=
damiano


----------



## BBCWatcher (Dec 28, 2012)

Note that the $250K (or $500K) capital gains exemption is net of costs. There are many, many home costs that the IRS allows to be subtracted from gains.

The way I'd interpret what you describe is that you are receiving rental income but 100% of it goes to the managers of your property (your parents). The flow of that income might be IRS reportable, but it doesn't sound like it is (yet) taxable. One possible strategy in the future is to go live in that house for at least a couple years in order to trigger the $250K (or $500K) capital gains exemption, net of costs. Also keep in mind the U.S. and Italy have a tax treaty that might provide some relief.


----------



## Bevdeforges (Nov 16, 2007)

Just to clarify - given that the parent appear to have purchased the property for their son, I suspect this could be characterized as a "gift" (though I admit I know nothing of the Italian tax laws regarding gifts). How to characterize the sale may also be affected by how the sale goes down and how the OP and his parents arrange to divide any proceeds from the sale. (Which could also be "gifted" one direction or another, depending on the tax laws at the time.)

This is not the kind of transaction that is going to show up on the IRS radar, in any event, and if the parents have been paying all the applicable taxes up until the point of sale, it may be just as well to keep doing things that way and then decide how to manage the proceeds.
Cheers,
Bev


----------



## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> This is not the kind of transaction that is going to show up on the IRS radar, in any event....


Why is this supposition relevant?


----------



## maz57 (Apr 17, 2012)

Probably because for expats, the IRS often knows only what the expat chooses to tell them. Unlike a financial account which may be reported under FATCA, the IRS has no way of knowing about a house in a foreign country except perhaps indirectly, for instance, movement of large sums through accounts that are being reported.

This situation is a perfect example of the ridiculousness of the US system of citizenship based taxation. This has certain similarities to the Boris Johnson situation, i.e. the US attempting to tax gains on foreign real estate. Why an expat would ever pay the US capital gains on the proceeds of foreign real estate is beyond me. It is a gross overreach and is nothing short of abuse. Fortunately no sale has yet occurred in this case so there is time to do the research and arrange things to avoid all this.

It would be a lot simpler if the parents' names were on the title of that house. It is functionally their house anyway. If and when it is sold, the proceeds could be gifted to the son. Alternatively, it could be inherited after their passing. By the way, if his cost of acquisition is zero, the entire proceeds would be subject to US CG when it is sold, not good.


----------



## Bevdeforges (Nov 16, 2007)

Just to add one thing to what maz57 has already said, it pays to take a look at exactly what the "foreign" banks are being asked to provide in terms of information, too.

In essence, they're being asked to give the IRS (via the national bank) roughly the same information as what you'd get on an 1099 - i.e. any interest, dividends or other sorts of "income" paid to American persons. They are (I think) also obligated to report the year end balance of the account.

They are not reporting transactions going in and out of the accounts. For that information they have to make a request to the bank directly by account number. It's highly unlikely they're going to do that unless they have some reason to believe you owe a significant (to them, not to you) amount of additional taxes. 
Cheers,
Bev


----------



## Nononymous (Jul 12, 2011)

The Boris Johnson story is marvelous.


----------



## maz57 (Apr 17, 2012)

Yes, the BoJo story has made quite a splash in the news lately. He's become a poster boy for the lunacy of US citizenship based taxation. He left the US at age five; not likely with much in the way of assets. After the famous NPR interview in which he described US CBT as "outrageous" and said he would refuse to pay the IRS CG tax on the sale of his London house, he has gone notably silent on the subject. This is probably on the advice of his lawyers who are no doubt trying to figure out just how bad a mess this is. Who knows, it might actually be politically advantageous for him to continue to be an outspoken refusnik.

It certainly puts the IRS in an awkward position. Do they give Boris a pass because he's the celebrity Mayor of London and US attempts to tax him appear ridiculous to any sane person or do they crack down on him and create yet more bad press for themselves? Or maybe they'll fast track his renunciation appointment and CLN and hope the whole thing is soon forgotten by the media.

He's likely in no conciliatory mood because a US customs goon once refused to allow him use his British passport to board a flight to Mexico which laid over in the US. This was in front of his British wife and kids who had already boarded; Boris was told he could only enter the US on a US passport (which he did not have) because he was born in the US. Obviously this border guard was unaware who the mayor of London was. Boris was forced to book another flight via Spain and rejoin his family in Mexico.


----------



## Bevdeforges (Nov 16, 2007)

Just think about it, though. What means are available to the IRS to enforce compliance from the mayor? If he has no US assets, they're more or less stuck. OK, he can't enter the US without a US passport. But past that, there hasn't been much enthusiasm on the part of foreign banks to seize accounts for US tax matters. And that issue has definitely been avoided in the bilateral agreements on FATCA.

Go Boris! Who'd have thunk he'd wind up the poster child for US expats?
Cheers,
Bev


----------



## maz57 (Apr 17, 2012)

The British authorities are in no mood to collect on behalf of the IRS. The US government has steadfastly refused to pay the City of London the "congestion charges" for their embassy. Boris has been keeping track of that and the bill is up into the millions now. Reportedly Boris presented Obama with said bill when he visited London recently.

My best guess is that Johnson will quietly renounce his US citizenship, skip the tax return/8854 rigamarole and the US government will give him a pass and hope the whole thing blows over. If he is balking over paying CG on his London house sale, I can't imagine he would pay the substantial exit tax which he would surely owe.

Yeah, go Boris!


----------



## Nononymous (Jul 12, 2011)

What I read about this a few years back was that it wasn't US customs that turned him away, it was actually the airline that refused to let him on the flight with a US birthplace on a UK passport. He had to (expensively) rebook via Spain to meet his family in Mexico. Apparently he has a US passport now, to avoid this problem. (Such was basically my calculation - the risk of obtaining the passport is outweighed by the risk of not having one when you occasionally need to travel to or via the US.) 

I think it's just utterly grand that a wealthy, prominent "accidental" has publicly called this bollocks. I'm quite certain his lawyers had a fit, hence the silence. It will be interesting to see if the UK affords the same protections the Canadian government has promised. 

Also interesting to see if the Lord Mayor's bank is keen to fire him as a customer - probably not, they'll make the FATCA reports, since he's outed himself anyways, what's there to lose?


----------



## maz57 (Apr 17, 2012)

I actually listened to the NPR interview a while back. He attempted to dodge the question but the interviewer kept pressing the issue. He finally let her have it with both barrels. His Churchill book sounds like it might be a good read. (I wonder what Churchill would think about the Boris situation? His wife was American.)

Its hilarious the US has the gall to accuse him of tax evasion when they are blatantly guilty of the same thing right there in Boris' home town.

As far as UK government protection against collection of behalf of the IRS, apparently the US/UK treaty has no wording similar to the US/Canada treaty. However, I'm told there is another provision that allows one party off the hook if the other party isn't willing to reciprocate. In view of the fact the US doesn't reciprocate on anything they would be very unlikely to collect a UK tax debt levied upon a US citizen who is in the US, he probably doesn't have to worry. 

Regardless of whether we have our facts exactly right (I only know what I read in the media) it's about time the light of day is finally shining on the US' dirty little secret. There are lots of high level officials and celebrities around the globe who have the dreaded US connection. Are their banks going to out them? Stay tuned.


----------



## Bevdeforges (Nov 16, 2007)

Nononymous said:


> Also interesting to see if the Lord Mayor's bank is keen to fire him as a customer - probably not, they'll make the FATCA reports, since he's outed himself anyways, what's there to lose?


The main thing the banks need to report on his accounts is his US social security number (if he has one). Not sure his age, but they haven't always handed out the SSNs along with the birth certificates. "Back in my day" you normally didn't get an SSN until you got your first job around age 16 or so. Not sure when the SSNs started being issued at birth.
Cheers,
Bev


----------



## Nononymous (Jul 12, 2011)

Bevdeforges said:


> The main thing the banks need to report on his accounts is his US social security number (if he has one). Not sure his age, but they haven't always handed out the SSNs along with the birth certificates. "Back in my day" you normally didn't get an SSN until you got your first job around age 16 or so. Not sure when the SSNs started being issued at birth.
> Cheers,
> Bev


Who knows? You don't need an SSN to obtain a passport, the instructions say to write zeroes if you don't have a number.


----------



## gopostal (Sep 4, 2014)

Regarding property tax, I have a question that maybe you can help me with.

My wife is a US citizen by birth (oops) and we're working through the Streamlined process. Just so happens that in 2011 we sold our jointly-owned house after living in it for 720 days (yes, 10 days short of 2 years).

I was thinking that maybe we wouldn't have to put it on the tax form since the gains on the house were about 14,000 CAD which is well under the threshold of $250,000. I saw on the form 523 that you could do a worksheet to show the percentage of exclusion (in this case, 0.986), but it also says that if you're under the 2-year mark then it doesn't count.

One interesting side to take would be that if filing separately, it says each person does so based on their share of the house. Well, she is/was a stay-at-home mom with no income so I think I could make an argument that she was on there in name only. Or could I?

I'm tempted to say "the IRS will never figure it out" but I don't want to screw us down the road. If we're trying to get legit through Streamlined, I want to get totally legit and not have to worry that I was cheating the system.

Thoughts?


----------



## Bevdeforges (Nov 16, 2007)

gopostal said:


> I'm tempted to say "the IRS will never figure it out" but I don't want to screw us down the road. If we're trying to get legit through Streamlined, I want to get totally legit and not have to worry that I was cheating the system.
> 
> Thoughts?


Quite honestly, I would go with this one. If the IRS comes back to ask questions (and why they would is anyone's guess) I'd use the approach that you mentioned just before that. (Stay at home mum. You were the one who contributed all the funds for buying the house, etc. etc.)

But I think the possibility of you ever hearing anything about it is pretty slim to non-existent.
Cheers,
Bev


----------

