Help! FATCA - owe $3k?!

Does anyone have any knowledge of the FATCA rules/process?

We are on a low income but received a loan from US family to buy a house in the UK last year. Those funds meant we had just over $400k in our bank accounts last year and so now have to file form 8938 for the first time.

(Loan was done in accordance with IRS rules and family hired an accountant/attorney. Thanks to the pandemic/housing market we are only just about to complete on the house now.)

I am using OLT.com to file this year and after entering the accounts it says we owe the US $3,000 

Is this correct/normal for a loan?

Can you afford to seek professional advice? These online websites are not very good if there is any complexity in your return. I'd have a look at greenback taxes or taxes for expats. You may be able to get a consultation at least so you know what to do.

You say that you are a low income family - on that basis you should be able to use IRS free file - which is what I presume you have done with OLT.com?

Try using any of the other free options - I'm an advocate of Tax Act but Turbo Tax is also highly rated - assuming you fit all the criteria and can register.

Filing form 8938 is merely an IRS disclosure (albeit an important one) - that in itself will not have created a tax liability - there must be a line on your 1040 that has created an income tax liability because of this loan - has OLT.com disclosed an income you were not expecting? usually between lines 2 and 8 of Form 1040.

FACTA is a whole other process - an annual requirement for anyone who has more than $10k in any financial accounts at any time during the year (virtually everyone contributing on this part of the forum is likely to file) - you will almost certainly need to file the required forms - relatively easy and straightforward - just search the forum and I'm sure you will find what you need. Alternatively just visit the FINCEN website for full details:

https://www.fincen.gov/report-foreign-bank-and-financial-accounts

@svens - there are some very good people that contribute to this forum and some of them are qualified professionals who give their time and advice without charge - please don't knock it!



 

Loans are not considered taxable income by the IRS, so they need not be reported on the 1040.

Something else will have triggered that $3,000 bill, as Smitch says. I'd look for typos, and also be sure to take every deduction to which you are entitled.

As mentioned above loans are not taxable, and FATCA reporting using forms 8938 are just that - reports that don't result in taxes.

The $400k loan sitting in savings accounts will generate some taxable income, for example a 4% return will generate $16k taxable income which would produce $3.2k of tax at a 20% tax rate.

As mentioned above loans are not taxable, and FATCA reporting using forms 8938 are just that - reports that don't result in taxes.

The $400k loan sitting in savings accounts will generate some taxable income, for example a 4% return will generate $16k taxable income which would produce $3.2k of tax at a 20% tax rate.

I think you’ve nailed it.  I suspect it’s interest income.

The $400k loan sitting in savings accounts will generate some taxable income, for example a 4% return will generate $16k taxable income which would produce $3.2k of tax at a 20% tax rate.

What is this interest you speak of?  4% return?  Last year?  Was that a thing for high balance accounts?

What is this interest you speak of?  4% return?  Last year?  Was that a thing for high balance accounts?

True, for cash savings accounts in the UK 4% is stretching it but as everything was reported in $s I looked at our own investments in the USA and we did much, much, better than 4%. Just trying to think what would trigger $3k in taxes. Certainly not the receiving of the loan or the transfer to the UK.

Since this is a loan from US friends they could have kept the $400k in the USA before transferring it to buy a house. When we bought our UK house we had sold our US house and kept the funds invested in the USA until we actually needed it. Can’t keep it in UK funds, other than cash, because of PFIC.

ETA
According to money savings expert Martin Lewis you can get 3.5% .

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

Regular savers were hit hard last year, with frequent rate cuts across the board. But it's still just about possible to earn 3.5% interest on savings tax-free. Regular savings accounts are a hidden species designed for you to feed them every month – we've all the top picks in this guide, plus tricks to maximise interest.
Top-pick regular savers
Top existing customer accounts
Yorkshire BS – 3.5%
NatWest – 3.04%
RBS – 3.04%

Capital gain on the exchange rate movement on conversion of the loan when granted and at year end maybe? Not sure whether that triggers a tax event?

Capital gain on the exchange rate movement on conversion of the loan when granted and at year end maybe? Not sure whether that triggers a tax event?

I wouldn’t think that would trigger a taxable event.

I don't know all the circumstances here regarding the OP mortgage, but the following article makes an interesting read!

https://www.ey.com/en_uk/ey-frank-hirth/why-uk-mortgages-can-lead-to-tax-liabilities-for-us-citizens

I don't know all the circumstances here regarding the OP mortgage, but the following article makes an interesting read!

https://www.ey.com/en_uk/ey-frank-hirth/why-uk-mortgages-can-lead-to-tax-liabilities-for-us-citizens

Yes, if the OP had retired a mortgage and started a new one in the process of buying a house with the loan they received then this would definitely have a tax impact.