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In the US, you can refinance your loans. Essentially taking out a new loan to pay off your old mortgage. The new loan has the new market interest rate. In the U
by simulate-me 4y ago
In the US, you can refinance your loans. Essentially taking out a new loan to pay off your old mortgage. The new loan has the new market interest rate. In the US, you’re typically allowed to pay off additional principal without any penalty, so you can end a loan by paying off the outstanding principal without needing the pay the remainder of the interest on the loan.
- nsteel 4y agoAs I understand it, it's this refinancing that leads US citizens in the UK ending up with a surprising US capital gains bill after they re-mortgage their UK property. And we also (normally) have ERCs in the UK so as usual, the rest is the worst of both worlds. Ideally one could renounce the citizenship, oh wait...
- simulate-me 4y agoThe IRS does not consider a refinance (even a cash-out refinance) to be a capital gain. The IRS also allows for 250K (500K if married) of tax-free capital gains on the sale of a primary residence. Maybe you misunderstood your friends’ situations.
- tristor 4y agoThis is only true for a primary residence located in the US. If it’s a foreign asset, it’s taxed normally. The IRS deeply screws expats.
- simulate-me 4y agoI just looked this up and you're right. If you're subject to the expatriate tax then you're automatically disqualified from the exemption. From my reading, it seems like there is a small loophole. You can sell a foreign property if you move back to the U.S. and meet all the other primary residence conditions.
- nsteel 4y agoExactly. And what's even more brilliant is that it entirely depends on the exchange rates at the start and end of the period. So a zero gain (or even a loss) over that period in the UK can still result in US tax owed.