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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15610
Experience:  International tax
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US Tax Return - Sale of property continuation. Following

Customer Question

US Tax Return - Sale of property continuation. Following on from my question about foreign mortgage interest, here is an example of what I asked about: http://www.greenbacktaxservices.com/blog/expat-taxes-buying-selling-real-estate-abroad/

Please see the section: US Expat Taxes and Selling Real Estate Abroad

This shows there is a liability on the mortgage based on the difference of the 2 exchange rates?

Please can you advise.

Submitted: 1 year ago.
Category: Tax
Expert:  TaxRobin replied 1 year ago.
I read what they said and I disagree. I do not know that company nor do I agree.
Customer: replied 1 year ago.

When you say you disagree, are you saying that such legislation does not exist?

Does the US Tax system / IRS/ Federal law have this legislation?

Expert:  TaxRobin replied 1 year ago.
Not as far as mortgages. I notice they listed no relevant tax law as their source.
Customer: replied 1 year ago.

Ok thank you. If not for mortgages, what does the legislation apply to?

Expert:  TaxRobin replied 1 year ago.
When you have "cash" from another country that you exchange or you have investments that are in another currency.
Customer: replied 1 year ago.

I have found another site which has a source:

http://www.maximadvisors.com/2013/06/foreign-residence/

Please see: Taxation of Exchange Rate Gain

(Revenue Ruling 90-79, 1990-2 CB 187)

Expert:  TaxRobin replied 1 year ago.
An individual may not offset the gain (or loss) realized from the sale of a personal residence with a loss (or gain) realized on the repayment of a nonfunctional currency denominated mortgage loan used to finance the purchase of the residence.The mortgage does not change the sale.
Customer: replied 1 year ago.

I'm not sure what the above means but there are many websites citing the same. I do not want to pay extra tax, however I am really worried that this mortgage interest is an issue. Please kindly see below which provides reference to the Revenue Code:

http://www.taxadvisorypartnership.com/blog/us-tax/uk-property-and-mortgage-exchange-rate-gains/

'With apologies for citing the technical references, section 988 of the Internal Revenue Code deals with foreign currency transactions and includes becoming a borrower under a foreign mortgage e.g. a GBP mortgage to buy a home in the UK. Under the US law predating Section 988, the borrowing and repayment of a mortgage loan is a separate transaction from the purchase and sale of the property. The repayment of the mortgage constitutes a closed and therefore, taxable transaction and as such there are usually tax consequences for a US person who redeems their UK mortgage or indeed any other non-US dollar loan.'

Expert:  TaxRobin replied 1 year ago.
I will agree to do more research on your behalf and this issue.