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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
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Experience:  International tax
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Continuation of FATCA US Tax Filing question: I forgot to

Resolved Question:

Continuation of FATCA US Tax Filing question:
I forgot to ask in my earlier question today, you mentioned that: 'There would not be a penalty as long as you owe no actual tax to the US (you can exclude all earned income or you can use a tax credit ).'
If I pay taxes in the UK for all earned income, does that mean there is no tax due in the US? I wondered what circumstances would mean that I would be liable for US tax?
Submitted: 1 year ago.
Category: Tax
Expert:  TaxRobin replied 1 year ago.
If you had earnings over the excluded amount allowed for a specific year then that could lead to a tax amount still owed.If you had income from investments and the tax you paid in the UK was not enough (as a credit on form 1116) to cover the US tax then you could owe.Most of the time this is not a problem but it could happen.
Customer: replied 1 year ago.

Thank you.

Am I right to assume that it is only for earned income from employment or investments?

So if I sold my home (main residence) and the proceeds are held in my savings account because I haven't purchased another property yet as I haven't found one yet, the savings would not be included in the tax review?

Expert:  TaxRobin replied 1 year ago.
Your earned income can be excluded (up to the yearly amount).Investment income (US calls this passive income) can take advantage of the foreign tax credit for taxes paid in UK.Sell of your home is allowed to have gain (up to $250,000) excluded. The gain is calculated much like the UK does (cost and difference in sell price with costs to sell subtracted).The INTEREST on the savings is accounted for tax and the Account itself is reportable under FATCA depending on how much is in the account.Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States. If you file jointly with your spouse, these thresholds double. You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.You are required to click a positive rating so I am credited with the response.
Expert:  TaxRobin replied 1 year ago.
The need to file under FATCA (which is reporting of account not tax) is determined by th amount in the account
Customer: replied 1 year ago.

So the bank has sent me the forms to complete because of the large amount of sale proceeds in my account?

Expert:  TaxRobin replied 1 year ago.
The bank sent you the form based on your acknowledgement of US citizenship and the amount too made that necessary.The bank will report the account to the US .
Customer: replied 1 year ago.

Will the US ask me to prove how I obtained the funds?

What I am worried about is that the funds includes the original deposit I put down to purchase in addition to the gain.

Would I be able to deduct the costs to purchase in addition to costs to sell?

In the UK, there are no taxes due on gains of the sale of your main residence, tax is only applicable for 2nd homes/investment property so this feels unfair!

Expert:  TaxRobin replied 1 year ago.
The US calculates the gain as the difference in the Purchase price plus Improvements and the sale price less costs to sale. Then if you have a gain you can exclude up to $250,000 of the gain. They do not care what you do with the funds after you sale. A 2nd home is not allowed exclusion at all and if a gain tax is paid.
Customer: replied 1 year ago.

In the UK for capital gains tax you can include the costs to purchase, for example Stamp Duty Tax which is 3% of the purchase price, plus legal fees to purchase, and any improvements. Can I include for the US calculation: the Stamp Duty and legal fees to purchase?

-Would they calculate the $250,000 threshold based on the exchange rate of USD/GBP on the day of the sale?

-What % tax is calculated on the difference after $250,000?

Thank you.

Expert:  TaxRobin replied 1 year ago.
Improvements yes, not legal fees or stamp duty. To the US stamp duty is a transfer tax and not income.The exchange rate on the date of the event is used.% of tax is based on total income for the entire year. It could be 0%, 15%, 20%.We have completed this original subject really but I continued to assist.Please rate and close this thread.
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 14422
Experience: International tax
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