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Gain on Foreign Mortgage

Forum|Forum|6 years ago
April 12, 2020
3 replies
46 views

Hello Everyone.

Hope you all are having a good easter.

A quick question, I have a client who is living in the UK and took the mortgage in 2011 and now selling his house and have gain of $500k plus due to the interest rate. My question is, where and how can I report this gain. I was thinking online 21 as other income, any suggestions, please. Additionally, I was reading that this is also subject to net investment tax, how can I make this subject to this tax as well in the system.

Thank you in advance!

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Best answer by BobKamman

No, you should compare the £793,065 he paid off at the lower exchange rate, to the value of that same amount, £793,065 when he borrowed them. That comes out to about $221,437. The rest of the gain, if any, came mostly since 2014, because the pound traded mostly higher from 2011 until then (so he was losing money).

George4Tacks

Level 15

Was this their personal residence? US Citizen living in UK? I think you did your question too quickly and did not give enough information. I am pretty sure that line 21 is not the place to report this, but I have been wrong before.

Answers are easy. Questions are hard!

A

atif1040Author

Level 3

Yes, it was their personal residence. They are US citizens.

Just-Lisa-Now-

Intuit Community Champion

took a mortgage in 2011...when did he buy the house? what does interest rate have to do with the gain? Im confused.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

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atif1040Author

Level 3

House bought in 2011. I never mentioned the interest rate in my post. My questions is how and where would I report the gain due to the foreign exchange rate.

itonewbie

Level 15

There is no gain to be recognized for "interest rate". Even if your client had a mortgage below market rate (which is unlikely), §7872 does not work this way, although it may trigger a reporting and information return filing requirement under §6039F.

There may, however, be a foreign currency gain that needs to be recognized pursuant to §988 on a foreign-currency denominated mortgage. This gain is computed with each principal repayment and not only at the sale of the home. This must also be figured separately from any gain the taxpayer may need to recognize for the sale of home and §121 does not differentiate whether a home is in the US or a foreign country.

Foreign currency gain is reported on Line 21 whereas the sale of home is reported on F.8949.

See also these two threads for discussions about foreign currency gain on mortgage.

https://proconnect.intuit.com/community/tax-talk/discussion/re-foreign-exchange-gains/01/76964#M2452

https://proconnect.intuit.com/community/tax-talk/discussion/re-foreign-exchange-gains/01/77459#M2501

---------------------------------------------------------------------------------Still an AllStar

itonewbie

Level 15

Something doesn't seem right if $500k is all foreign currency gain.

Gain on sale of home, as I explained, is computed separately and is determined based on spot rates.

---------------------------------------------------------------------------------Still an AllStar

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