Solved: Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?
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ascalv3rt
New Member

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

In 2015, I paid off a mortgage of approx 7,000,000 Danish Krone = 1,000,000 USD but did not sell the home.

When I initiated the mortgage in 2011 due to a different exchange rate at the time it was equivalent to 1,250,000 USD.

Question 1: Does this mean I am liable for tax on a 250,000 USD gain?

Question 2: How should I report it in TurboTax to ensure the right tax rate?

Thanks

1 Best answer

Accepted Solutions
Zbucklyo
Level 9

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

I'm going to reiterate my earlier response.  It may be that the mortgage refinancing alone creates a taxable transaction for US tax purposes.  As I said earlier, consult a tax professional who is versed in this area to determine if you need to report this for US tax purposes

"Section 988 transactions are foreign currency transactions including becoming a borrower under a foreign mortgage. Under the US law predating section 988, the borrowing and repayment of the mortgage loan is a separate transaction from the purchase and sale of the personal residence. The repayment of the mortgage constitutes a closed and therefore, taxable transaction. If the loan increases in value against the dollar between the time of the original borrowing and the time of the loan repayment, the amount of dollars required to retire the debt would be less than the dollar value of the amount originally borrowed. Therefore, a gain is recognised on the loan repayment."

"The issue of taxable income on redemption of a mortgage has been the source of many difficult conversations over the past few months and we have nothing but empathy with those clients having to find funds to pay often unexpected liabilities resulting in this way. This is particularly the case when the mortgage has been redeemed but the property has not been sold as it can be difficult to find the funds to pay the resultant tax liability where no proceeds have been generated. " (emphasis added)

http://www.taxadvisorypartnership.com/blog/us-tax/foreign-mortgage-exchange-rate-gain/




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5 Replies
DoninGA
Level 15

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

If you have not sold the home, then you have nothing to report to the IRS.  The payoff of a home mortgage is not reported to the IRS.  A cash-out refinance of the home is not reported to the IRS.
ascalv3rt
New Member

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

If understand the link below correctly a foreign mortgage repayment could incur a tax bill even without selling the house due to currency changes.  Would really appreciate any documented evidence to the contrary: <a rel="nofollow" target="_blank" href="http://www.maximadvisors.com/2013/06/foreign-residence/">http://www.maximadvisors.com/2013/06/foreig...>
Zbucklyo
Level 9

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

I'm going to reiterate my earlier response.  It may be that the mortgage refinancing alone creates a taxable transaction for US tax purposes.  As I said earlier, consult a tax professional who is versed in this area to determine if you need to report this for US tax purposes

"Section 988 transactions are foreign currency transactions including becoming a borrower under a foreign mortgage. Under the US law predating section 988, the borrowing and repayment of the mortgage loan is a separate transaction from the purchase and sale of the personal residence. The repayment of the mortgage constitutes a closed and therefore, taxable transaction. If the loan increases in value against the dollar between the time of the original borrowing and the time of the loan repayment, the amount of dollars required to retire the debt would be less than the dollar value of the amount originally borrowed. Therefore, a gain is recognised on the loan repayment."

"The issue of taxable income on redemption of a mortgage has been the source of many difficult conversations over the past few months and we have nothing but empathy with those clients having to find funds to pay often unexpected liabilities resulting in this way. This is particularly the case when the mortgage has been redeemed but the property has not been sold as it can be difficult to find the funds to pay the resultant tax liability where no proceeds have been generated. " (emphasis added)

http://www.taxadvisorypartnership.com/blog/us-tax/foreign-mortgage-exchange-rate-gain/




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Zbucklyo
Level 9

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

It is not a capital gain, but you may have to pay tax on the exchange rate gain at ordinary income tax rates.  You should consult a tax professional who is versed in this area to determine if you need to report this, and if so, how to report it.

Anita01
New Member

Do I need to report a capital gain as I refinanced a foreign mortgage and how do I do it in TurboTax?

If you carefully read the information in that link you're showing, you'll see that it says there are two transactions  that occur upon sale, and one is a possible currency translation gain.  Neither one  of the transactions  becomes a taxable event if you have not sold the property. Each transaction is  only a part of a taxable, or even reportable,  gain upon sale.

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