Tax status in US - K1 visa

[FlashLG 152]

I'm trying to understand at what point someone entering the US on a K1 fiance visa becomes eligible to pay tax. Is it the moment you enter the US, or is it once you have married and completed the AOS process? I'm due to enter the US on 31st August and I'm in the process of selling my property in the UK. I was hoping to have sold it by now but it's looking likely it will sell after I've entered the US. I know there are additional taxes relating to Section 988 gains in the US, so I'm trying to work out at what point I'll have to pay US taxes on my property sale.

 

Any help would be gratefully appreciated. I've done a lot of reading around Section 988 gains but can't find the answer to this specific question.

[Wuozopo 4,293]

4 hours ago, FlashLG said:

I'm trying to understand at what point someone entering the US on a K1 fiance visa becomes eligible to pay tax. Is it the moment you enter the US, or is it once you have married and completed the AOS process? I'm due to enter the US on 31st August and I'm in the process of selling my property in the UK. I was hoping to have sold it by now but it's looking likely it will sell after I've entered the US. I know there are additional taxes relating to Section 988 gains in the US, so I'm trying to work out at what point I'll have to pay US taxes on my property sale.

 

Any help would be gratefully appreciated. I've done a lot of reading around Section 988 gains but can't find the answer to this specific question.

I don't think section 988 applies to your situation. That is more about forex traders who are profiting from buying and selling currencies. 

 

Try this IRS topic on sale of your residence  https://www.irs.gov/taxtopics/tc701.html

 

And this one on tax residency https://www.irs.gov/individuals/international-taxpayers/introduction-to-residency-under-u-s-tax-law

 

 

[JFH 12,190]

*~*~*moved from "K-1 fiancé visa process and procedures" to "Tax and Finance"*~*~*

[FlashLG 152]

23 hours ago, Wuozopo said:

I don't think section 988 applies to your situation. That is more about forex traders who are profiting from buying and selling currencies. 

 

Try this IRS topic on sale of your residence  https://www.irs.gov/taxtopics/tc701.html

 

And this one on tax residency https://www.irs.gov/individuals/international-taxpayers/introduction-to-residency-under-u-s-tax-law

 

 

Great, thanks for the links. They're really useful!

[Wuozopo 4,293]

1 hour ago, FlashLG said:

Great, thanks for the links. They're really useful!

 

Arriving Aug 31, you would not qualify as a resident alien (lower tax rate than non-resident alien) under the greencard test or substantial presence test. However you may choose to file jointly with your new spouse for 2017 as a resident alien and qualify to exclude up to $500,000 gain of a home sale. And remember your gain is only the profit earned above what you paid for the house,  minus any costs like estate agent fees. It's not the selling price. Chances are you will be able to exclude your gain from capital gains tax.

[FlashLG 152]

50 minutes ago, Wuozopo said:

 

Arriving Aug 31, you would not qualify as a resident alien (lower tax rate than non-resident alien) under the greencard test or substantial presence test. However you may choose to file jointly with your new spouse for 2017 as a resident alien and qualify to exclude up to $500,000 gain of a home sale. And remember your gain is only the profit earned above what you paid for the house,  minus any costs like estate agent fees. It's not the selling price. Chances are you will be able to exclude your gain from capital gains tax.

From what I see, capital gains won't apply as the gain won't be that high (I wish it was!). However, there is a tax in the US when you sell a property which relates to the difference in the mortgage value on the date the mortgage was taken out, and the mortgage balance on the date the property was sold (both converted from pounds to dollars). This difference is taxed by the US (I only recently heard about this), and it's this that I'm concerned about and trying to determine if I'll have to pay it, and what the tax rate would be.

[Wuozopo 4,293]

20 hours ago, FlashLG said:

From what I see, capital gains won't apply as the gain won't be that high (I wish it was!). However, there is a tax in the US when you sell a property which relates to the difference in the mortgage value on the date the mortgage was taken out, and the mortgage balance on the date the property was sold (both converted from pounds to dollars). This difference is taxed by the US (I only recently heard about this), and it's this that I'm concerned about and trying to determine if I'll have to pay it, and what the tax rate would be.

 

There is no such tax on difference in mortgage values. You say you recently heard about this. Do you think this was somebody's confused way of describing a gain on the sale of a home?  

 

For example: if I bought a $250,000 house with a mortgage of $200,000. I paid off the mortgage . When I sold the house, the mortgage was $0. How is the way I paid off indebtness of $200k in any way considered income to me? 

 

It's an income tax. The only way you would have Income is if your initial $250,000 house sold for $300,000. The mortgage arrangements have nothing to do with if you made a profit (income) off the house. 

[FlashLG 152]

On 8/11/2017 at 2:03 PM, Wuozopo said:

 

There is no such tax on difference in mortgage values. You say you recently heard about this. Do you think this was somebody's confused way of describing a gain on the sale of a home?  

 

For example: if I bought a $250,000 house with a mortgage of $200,000. I paid off the mortgage . When I sold the house, the mortgage was $0. How is the way I paid off indebtness of $200k in any way considered income to me? 

 

It's an income tax. The only way you would have Income is if your initial $250,000 house sold for $300,000. The mortgage arrangements have nothing to do with if you made a profit (income) off the house. 

I was told this by a Tax Adviser, as I sought tax advice ahead of my move. I'm perhaps not using the correct terminology, but he was clear in the fact that the difference in the value of the mortgage between the point it was taken out and the point of sale is taxable if the mortgage value has reduced. It relates to the info found here https://www.greenbacktaxservices.com/blog/expat-taxes-buying-selling-real-estate-abroad/ 

 

Such a tax doesn't exist in the UK and I was advised by the Tax Adviser that I could be eligible to pay this if my sale goes through at a point when I'm a US tax payer.

[Wuozopo 4,293]

2 hours ago, FlashLG said:

I was told this by a Tax Adviser, as I sought tax advice ahead of my move. I'm perhaps not using the correct terminology, but he was clear in the fact that the difference in the value of the mortgage between the point it was taken out and the point of sale is taxable if the mortgage value has reduced. It relates to the info found here https://www.greenbacktaxservices.com/blog/expat-taxes-buying-selling-real-estate-abroad/ 

 

Such a tax doesn't exist in the UK and I was advised by the Tax Adviser that I could be eligible to pay this if my sale goes through at a point when I'm a US tax payer.

 

The example link shows two things. 

 

1. The American who moved to China and back,  excluded all of the gain from the sale of his Chinese home, so no actual American taxation on the house. Your question was about US income tax on the sale. None.

 

2. The example American took a personal hit on the exchange rate when selling because of the difference of the value of his mortgage he took out (converted to USD) vs the exchange rate the day he sold and paid it off (converted to USD). That is not income tax. That is about timing your sale or transfer of money from £ to $  to be a more favorable exchange rate.  That's like if you said I sold my £200,000 home in August 2017 and that got me $220,000 in American money. But if I had sold it in 2015 I would have gotten $315,000 in American money.  That's the economy, not US income tax. It applies to any money you plan to transfer to the US.

 

So I suppose I still disagree that a reduced mortgage balance has anything to do with a tax formula. 

 

[FlashLG 152]

17 minutes ago, Wuozopo said:

 

The example link shows two things. 

 

1. The American who moved to China and back,  excluded all of the gain from the sale of his Chinese home, so no actual American taxation on the house. Your question was about US income tax on the sale. None.

 

2. The example American took a personal hit on the exchange rate when selling because of the difference of the value of his mortgage he took out (converted to USD) vs the exchange rate the day he sold and paid it off (converted to USD). That is not income tax. That is about timing your sale or transfer of money from £ to $  to be a more favorable exchange rate.  That's like if you said I sold my £200,000 home in August 2017 and that got me $220,000 in American money. But if I had sold it in 2015 I would have gotten $315,000 in American money.  That's the economy, not US income tax. It applies to any money you plan to transfer to the US.

 

So I suppose I still disagree that a reduced mortgage balance has anything to do with a tax formula. 

 

OK, I get what you're saying. I still don't think I've explained my point clearly but thank you for your patience. 

 

In the example here, http://www.ustaxfs.com/foreign-mortgage-repayment-exchange-rate-gain/ , 'a mortgage for £100,000 is taken out when the exchange rate is £1 to $1.50.  A capital payment of £100,000 or the remortgage occurs when the exchange rate is £1 to $1.20.  This would result in a $30,000 exchange rate gain.

The IRS view is that the individual took out a debt of $150,000 (£100,000 x $1.50) but only had to repay $120,000 (£100,000 x $1.20). The $30,000 of debt no longer owed is regarded as gain and is taxed as ordinary income.'

 

This gain and the tax of it is what I'm confused about, as in the eyes of the IRS I've 'gained' $30,000 which is liable to be taxed as income. Even though in reality, there is no gain as the amount taken out and paid off in £ is the same amount.

[Wuozopo 4,293]

1 hour ago, FlashLG said:

This gain and the tax of it is what I'm confused about, as in the eyes of the IRS I've 'gained' $30,000 which is liable to be taxed as income. Even though in reality, there is no gain as the amount taken out and paid off in £ is the same amount.

 

On a US tax return, there are many ways to massage your numbers to squeak out of some taxation. If your gain was going to exceed the $500,000 then you might try to manipulate your exchange rates and whatever to show a lesser gain. You don't exceed the exclusion and quite frankly the chances that anybody at the IRS is going to bother digging into your foreign house details and exchange rates is quite slim. I know the IRS sounds scary to new immigrants,  but unless you are a multi-billionaire American who has been on the IRS radar for tax evasion for years, a human will not even look into your house selling.

 

And if you have no gain that exceeds the $500k exclusion (which you said you don't) then you don't put anything about the home sale on the tax form. I think you are fine.

 

My USC wife sold her home about 10 years ago and made roughly $100,000 on strictly selling price minus original price. It didn't exceed the exclusion so she didn't get into the mathematical gymnastics of trying to come up with ways to show she theoretically made less than $100k on it. Didn't matter because it was below the exclusion. Nothing about the house sale was listed on the tax return. It was a non-event for taxes so to speak. The IRS has yet to ring us up and say, "We heard you sold a house in 2007 so we want to know if that is true and see your paperwork just in case you made over $500k."

Edited August 16, 2017 by Wuozopo

[FlashLG 152]

17 hours ago, Wuozopo said:

 

On a US tax return, there are many ways to massage your numbers to squeak out of some taxation. If your gain was going to exceed the $500,000 then you might try to manipulate your exchange rates and whatever to show a lesser gain. You don't exceed the exclusion and quite frankly the chances that anybody at the IRS is going to bother digging into your foreign house details and exchange rates is quite slim. I know the IRS sounds scary to new immigrants,  but unless you are a multi-billionaire American who has been on the IRS radar for tax evasion for years, a human will not even look into your house selling.

 

And if you have no gain that exceeds the $500k exclusion (which you said you don't) then you don't put anything about the home sale on the tax form. I think you are fine.

 

My USC wife sold her home about 10 years ago and made roughly $100,000 on strictly selling price minus original price. It didn't exceed the exclusion so she didn't get into the mathematical gymnastics of trying to come up with ways to show she theoretically made less than $100k on it. Didn't matter because it was below the exclusion. Nothing about the house sale was listed on the tax return. It was a non-event for taxes so to speak. The IRS has yet to ring us up and say, "We heard you sold a house in 2007 so we want to know if that is true and see your paperwork just in case you made over $500k."

OK great, thanks so much for your help! This has been driving me crazy trying to get my head around it.

[troika 307]

On 09/08/2017 at 9:35 AM, FlashLG said:

I'm trying to understand at what point someone entering the US on a K1 fiance visa becomes eligible to pay tax. Is it the moment you enter the US, or is it once you have married and completed the AOS process? I'm due to enter the US on 31st August and I'm in the process of selling my property in the UK. I was hoping to have sold it by now but it's looking likely it will sell after I've entered the US. I know there are additional taxes relating to Section 988 gains in the US, so I'm trying to work out at what point I'll have to pay US taxes on my property sale.

 

Any help would be gratefully appreciated. I've done a lot of reading around Section 988 gains but can't find the answer to this specific question.

Also in the same process. Not had my medical or interview yet, our case is at NVC now, but I am putting my house on the market this weekend. I hope it sells quick, before I leave for the US. I want to only have one suitcase and cash in the bank. It's like a life reset button, declutter and start over 

 

Have you found out how to move the money from the UK to the US eventually ? Also, I assume while the money is here in the UK and we live in the US, we have to at least declare the money ?

[Wuozopo 4,293]

3 hours ago, troika said:

Have you found out how to move the money from the UK to the US eventually ? Also, I assume while the money is here in the UK and we live in the US, we have to at least declare the money ?

 

You might look at Transferwise. I have used it.

 

There is reporting to the US once per year of some foreign bank accounts.

You can Google to find the info, especially on the IRS website for some official information.

 

FBAR form when your aggregate accounts exceed $10,000 (converted to USD) at any point during a calendar year. It's an online reporting form to the Treasury Dept.

 

FATCA form when your aggregate accounts exceed $100,000 (converted to USD) at any point during a calendar year. (Actually it's if married it's $100k and if single $50k). It's part of the tax return. Form 8938 I believe. 

 

 Both are reports and do not mean you owe tax on the money. 

[troika 307]

8 minutes ago, Wuozopo said:

 

You might look at Transferwise. I have used it.

 

There is reporting to the US once per year of some foreign bank accounts.

You can Google to find the info, especially on the IRS website for some official information.

 

FBAR form when your aggregate accounts exceed $10,000 (converted to USD) at any point during a calendar year. It's an online reporting form to the Treasury Dept.

 

FATCA form when your aggregate accounts exceed $100,000 (converted to USD) at any point during a calendar year. (Actually it's if married it's $100k and if single $50k). It's part of the tax return. Form 8938 I believe. 

 

 Both are reports and do not mean you owe tax on the money. 

Appreciate the feedback. Will keep all this in mind.

 

Thanks