Renting out US home while living in the UK?

Hi Dar,

My 'tax knowledge' is a little vague since leaving Intuit and the TurboTax/Taxcalc software I used to be involved with, but I'm pretty sure that the full rental income you recieve is the taxable amount - and will be subject to the prevailing rate which applies to you. The fact that you have a mortgage to pay off, of which the payment means you are not making any 'profit' is irrelevant - the taxman isn't really bothered about that.

So, you get your rental income lets say for arguments sake $1000/month. From that you'll be taxed on that $1000 figure lets say for examples sakes 22%. Thats a taxed amount of $220. You may then have to pay a management company a fee for finding you tenants etc - most vary between 10-15% - so lets say 12.5% and that will be calculated from the 1000/month rental figure = $125. So at the very least your income will be 1000-220 = 780. More than likely you'll need to pay the management fee as well so 780-125 = 655. I think those would be the very least calculations you'll need to do. On top of that, You'll need to pay the property taxes, the insurances (buildings at least I think) and of course for maintenence items - so maybe budget in another $100-200/month over the course of a year to pay for all those. I'm not sure if the owner pays the HOA fee (if applicable) or the tenant.

There's probably a few other costs floating around there I havent considered - legal costs for one - I'm just going on what I've reaearched so far for the US property market so far.

Then hopefully there's still enough left over for you to pay off the mortgage payment. if not, then it means you have to stump up the difference. If you can meet the mortgage payment and have an amount leftover - then that's yours to keep - you've already paid the tax on it (as such)

Looks like you need to bust out the calculator and do some research !  - from some of the above, I think I've partly reduced my options for buying out there to places that dont have HOA fees and I've jsut found out that Condo's and townhouses frequently dont give the owner complete ownership of the title - I'm looking further into this and as such, means I'm now looking for houses instead.

You won't be charged tax twice though, the double taxation treaty which exists between the US and UK ensures that - for more detailed info, on this site see what guya and lizzit say on the taxes section.
Good luck!

Cheers !DtM! West London & Slough UK!

Thanks, Dennis.  I am not using a management company as my brother is going to keep an eye on the place.  The property taxes are included in my mortgage, so that's not an issue there.  So, my "income" will be around $980 a month.

I found this statement on a tax website: If you do not rent your property for profit, you can deduct your rental expenses only up to the amount of your rental income. 
The IRS site explains this as personal use.  Since my friend will be renting for less than fair price for unit, it is considered personal use and since it is for greater than 15 days, I can deduct my mortgage interest, my property taxes, casualty losses, etc.  And after that, I will have a loss.  So, that is actually better for me, from what I understand.

I think...

Yes, you can still write off loads of stuff when you do your taxes, just like you did when you lived there. Keep in mind you can also write off any travel necessary to maintain your property. When I flew home this summer I needed to find new tenants, so I'm able to write off my flight as an expense towards the house.

As for the tax website....I don't know how anyone rents a property not for a profit....that just doesn't seem possible to me. Even if you're only renting enough to cover the mortgage, it's still considered a 'investment' and the owner is profiting. Weird.

I think it is because my tenant will not be paying enough to cover the mortgage and she is also paying less than fair market value for the rent.  Wow, I am a research addict!

DISCLAIMER:  I AM AN AMATEUR!!!!

Oddly enough, in the US most small-time landlords probably show an income loss on rental properties.  This is because you get two big tax write-offs, mortgage interest AND property depreciation.  Note that you don't write-off your entire mortgage payment, just the portion that goes to interest.

Here's a "simplified" tax example.

Rent = $1500/month or $18,000/year
Property tax = $1200/year
Condo Fees = $200/month or $2400/year
Insurance = $400/year
Mortgage Payment for Interest = $9,000
Mortgage Payment for Principle = not deductible

Your taxable income BEFORE depreciation is:
18,000 - 1,200 - 2,400 -400 - 9,000 = 5,000

However, you can also deduct depreciation in house value.  This is the purchase price less what the land is worth spread over 28 years.  So if you bought for $380,000 and the land it's on is worth $100,000 you can say it depreciates $10,000/year (based on (380k-100k)/28).  (this gross simplification isnt even right but I tried to make this easier to understand).  This makes it actually a tax loss every year:

18,000 - 1,200 - 2,400 -400 - 9,000 -10,000 = -5,000

It's pretty easy to show zero income or less on a rental property as mortgage interest and depreciation add up to a lot.  I would avoid showing so much depreciation that your income is negative though as that will cost you more later down the road as when you sell you basically pay tax on claimed depreciation.

Another important tax note is that profits made selling a property you have lived in are tax-free (up to some large amount anyway).  If you rent a property you will have to pay taxes on profits when you sell if you didn't live there for 2 of the last 5 years.

Schedule E will show you everything that's counted as expenses for property rentals.  Form 4562 gives depreciation info.  Publication 527 has good info as well.

Well, I will have lived in my house 2 of the last 5 when I sell it, so, I should be good! 

I'm reviving this thread because we've decided NOT to sell our house before we move to the UK in March.

My husband is a realtor here in the US and is convinced that this is the right decision. He doesn't want to hire a management company b/c he has friends that will deal with any issues that arise.

I'm wondering if anyone else has rented out their US house while living in the UK and had problems. It would help me convince my husband to get a management company if I had some second-hand tales of woe!

Thanks.

My friend is my management company (she also owns an apartment building), so I pay her 10% a month and it's worked out great. The house was broken into in December 06 and I didn't have to deal with any of it. I never know anything that's going on, except when my rent checks hit the bank account, so it's been really great.

I'm reviving this thread because we've decided NOT to sell our house before we move to the UK in March.

My husband is a realtor here in the US and is convinced that this is the right decision. He doesn't want to hire a management company b/c he has friends that will deal with any issues that arise.

I'm wondering if anyone else has rented out their US house while living in the UK and had problems. It would help me convince my husband to get a management company if I had some second-hand tales of woe!

Thanks.

We are dealing with this right now. We just interviewed our second mgmt company. We would not do this any other way, even if family or friends could help out. The reason being is, this is why they are in business, is to make money from managing our property. If they do a lousy job, they would lose their client, lose their income and potentially lose their reputation. (Angies List for example)

Friends and family really don't have a vested interest in your property unless their business is property mgmt.

I have a friend in Dubai that is using a property mgmt company in Stirling, for again, the same reason, peace of mind. He does not want to burden his parents with any of the tasks and issues related to letting.

I would recommend finding a few companies and interview them.  Standard fee I've found to be ~90% of first months rent, 10% per month there after as long as it's occupied and nothing while it sits empty, deposit sits in escrow.

Thanks for your post. It's very good advice!

Hi,

I've got a condo outisde Washington DC, and I also have a management company taking care of it for me, and I highly recommend it.  They collect the rent, pay the condo and homeowners association fees, screen applicants when it's vacant, clean/paint/recarpet the apartment between tennants, fix things when they break, keep a contingency fund so that if something big breaks I'm not hit with a big bill, send me a monthly statement of income and expenses, and they do all that for 10% of the rent.  It's so nice to know that things are being taken care of.

good luck,
Carl

Hi,
We decided to move to England for a couple of years so we are renting our house in South Carolina out.  We moved all out stuff in storage (ok maybe not all, we had acquired so much junk that we had to leave stuff up the roof and a shed), Insurance was hard to get as we are in the hurricane zone already (less insurers), most regular insurers would only insure you if you had  your primary residence with them.  Finally found someone that would though and the rate is reasonable.  I have a management company that take 10% and they pay the rent straight into my bank for me.  They just deduct any maintenance, in the past year we have had to replace the already fairly new dishwasher and fix old plumbing, but they took care of it all.  The management company found the tenants, and I am anxious about how they have looked after it, most things are fixable so you can't worry too much.  I worked for a property management company for 9 years (mainly short term rentals), and we rarely saw damage to the condos, even though there were many drunken parties.  I have a very capable brother in law that does come to look at problems on the house so we don't get ripped off, but I wouldn't have given him the responsibility to do look after it all as the property management company have dealt with all the issues before, if some refuses to pay, refuses to leave etc I would rather leave it to the professionals.