Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part One
There is a deduction of US$250K on the net proceeds of the sale of a principal residence.
https://www.angloinfo.com/blogs/global/us-tax/americans-abroad-selling-the-principal-residence/
@BB
I seem to recall reading (Phil Hodgen?) that the $250K USD deduction does not apply in the case of renunciation. I.e., you would have to sell the principal residence before renouncing in order to be able to use the deduction; it is not applicable in the deemed disposition that occurs when renouncing.
Like I said, this is going from memory, so do your own due diligence.
Good point, tdott.
@tdott, @BB
Phil’s article is here. The TL;DR is that you always get the $699k (for 2017) expatriation tax exclusion, but with some finagling you might also be able to benefit from an additional $250k primary residence even without actually selling the home (although this is the IRS, so naturally nothing here is clear).
Of course, if all your unrealised gains, including your home, fall within the $699k expatriation tax exemption anyway, then there is no mileage to be had from any additional primary residence exclusion, and the usual IRS murkiness here becomes irrelevant.
Agree with TDott and Hodgen, this is not after a sale but calculated on your ‘ pretend’ gains the day before renunciation.
If the chips were down, I was covered and my gain was close to the $699,000 allowance , I would not want to argue with the IRS to please include the $250, 000 ‘maybe’ allowance. Better the self evaluation of your house is less.
@joe
Is it OK to tell me the CPA’s contact info? It would be great to have someone already understands our condition and has successfully accomplished the task to help.
Thank you!
re 8854 – how can one calculate the fmv of a rental property outside of the US and what proof does the IRS need – do they require an appraisal?
what date does one cease to be a US person for tax purposes? is it the day before renouncing or the day of renouncing?
lioness, can’t help with the property thing, but you work your worth out on the day before you renounced.
@lioness
The guide states that you do not need an appraisal to calculate fmv. I just used an estimate what I thought it would reasonably sell for. There have been no reports of IRS queries for property net worth,… but maybe if you were a big fish.
All calculations for the 8854 are based on your net worth the day Before renunciation.
https://www.irs.gov/pub/irs-pdf/i8854.pdf
Pagae 5: 8854 Instructions:
Part IV—For Persons
Who Expatriated During 2017
You are considered to own any
interest in property that would be
included in your gross estate for federal
estate tax purposes under Chapter 11 of
Subtitle B of the Code if you died on the
day before the expatriation date as a
citizen or resident of the United States.
Whether property would be included in
your gross estate will be determined
without regard to sections 2010 through
2016. For this purpose, you are
considered to own your beneficial
interest(s) in each trust (or part of a
trust), other than a nongrantor trust
subject to section 877A(f), that would
not be included in your gross estate as
described in the preceding sentences.
Your beneficial interest(s) in such a trust
shall be determined under the special
rules set forth in section III of Notice
97-19, which is on page 40 of Internal
Revenue Bulletin 1997-10 at
http://www.irs.gov/pub/irs-irbs/irb97-10.pdf.
Column (b). Use the fair market value
(FMV) on the day before your
expatriation date. FMV is the price at
which the property would change hands
between a buyer and a seller when both
have reasonable knowledge of all the
necessary facts and neither has to buy
or sell. If parties with adverse interests
place a value on property in an
arm’s-length transaction, that is strong
evidence of FMV.
Column (c). Generally, the cost or
other basis in this column cannot be
less than the fair market value of the
property on the date you first became a
U.S. resident. However, if you are a
naturalized citizen or LTR at the time
you expatriated, you can make an
irrevocable election under section
877A(h)(2) to determine basis without
regard to this restriction. Print “(h)(2)”
after any entry for which you make this
election.
etc.
Part V—Balance Sheet and
Income Statement
The financial information in Part V is
required under section 6039G. The
balance sheet (Schedule A) can be
used to arrive at your net worth.
https://www.irs.gov/pub/irs-pdf/i8854.pdf
Who Must Complete
Section 877. If you checked the “Yes”
box in Part II, line 1, you must complete
Part V.
Section 877A. If you expatriated in
2017, you must complete Part V.
Schedule A—Balance Sheet
Note. If there have been significant
changes in your assets and liabilities for
the period that began 5 years before
your expatriation and ended on the date
that you first filed Form 8854, you must
attach a statement explaining the
changes. Also, if you expatriated after
June 3, 2004, and before June 17,
2008, attach a similar statement if you
expect significant changes in the
10-year period after expatriation or
termination of residency.
Columns (a) and (b)
List in U.S. dollars the fair market value
(column (a)) and the U.S. adjusted basis
(column (b)) of your assets and liabilities
as of:
The end of the tax year for which you
are filing this form if your expatriation
date is before June 17, 2008, or
Your expatriation date if you
expatriated on or after June 17, 2008.
You can use good faith estimates of
fair market value and basis. Formal
appraisals are not required.
The FMV is your best guess as to what someone would pay for it. Some have used appraised value from property tax rolls. Others would use a value based on revenue . As Calgary posted, formal appraisals are not required.
Do they know the property exists. Someone posted ‘don’t tell them anything they don’t already know.
Thank you …Thank you…for the most helpful posts!
To find the value based on revenue, take the net revenue (ie profit after expenses.
Divide by the capitalization rate for the type of property in your area. E.G. net profit 10,000. Cap rate 6.5 %. Value =. 154,000.
Hi,
Has anyone relinquished but never filed this 8854 and visited US? I have CLN from 7yrs ago but never did anything else when I got the CLN. Too broke to get help from tax agents in my country, talks of ‘fines’ scared me so out of fear did nothing. I suppose now I am considered ‘covered expat’ even though zero net worth. Anyway, might need to visit US a few days for funeral. Chances of any problems from my Murican masters who seem to feel they “own” my life? I have a pilot friend he says he highly doubts I will have trouble. He said Airports would have to have city sized detention centers if they flagged down anyone with an issue. Just wondering have you been back and any issues?
@escapedMurica
“Has anyone relinquished but never filed this 8854 and visited US?”
Interesting question and hope someone has an answer. I renounced and did file form 8854, along with filing back US tax forms. With a few trips to the US since renouncing, I haven’t had trouble. Except there was one incident where I was asked for a US passport due to a US birthplace on my Canadian passport. I indicated that I was no longer a US citizen and was not asked for my CLN. However, I always travel with a copy of the CLN just in case.
But travel to the US is always unnerving so I try to avoid going. Only did so due to sick, elderly relatives who can no longer travel to see me here in Canada.
Also, I know a few people who are dual Canadian/US citizens and have done nothing. They have traveled to the US without incident, so far. Although I wouldn’t recommend this.
I think there are a few folks here who have renounced/relinquished without 8854 and all that. Maz57?
I doubt you’d have a problem going back for a visit. Border services doesn’t seem to have any access to tax records. Just bring a copy of your CLN.
I’m a non-compliant dual citizen with a US birthplace, but insist on using my Canadian passport when entering the US. I keep a US passport handy in case they ask for it. I identify as Canadian and I have no great respect for US law, so will continue with my small but satisfying act of civil disobedience foe as long as I can get away with it.
ok after more research it appears DHS can ‘hold’ you if you are flagged but usually this needs a warrant and other serious tax avoidance problems. Even then, all they do is question you and determine where you will be staying, and tell you to expect a call from the IRS. It also sounds like it doesn’t even work in practice due to total disorganization of the poorly maintained list of problem expats and communication between all the departments. In other words I suspect if you are a ‘minnow’ there ain’t going to be an issue.
@escapedMurica
Yes, there is a provision to determine the whereabouts of someone seriously delinquent, but I think proceedings need to have been brought already – in other words, the traveler would likely know they were taking a risk, as they would have had a history of IRS trouble. Anyone who’s renounced but not completed the tax paperwork is not the target here.
I’ve been hassled on occasion for the Canadian passport with a US birthplace but never a single word about tax filings. Even in the age of big data the US government seems to be very compartmentalized. The border guys do the border stuff; tax just isn’t their department. Your pilot friend has the right idea. Just keep that CLN in your back pocket in case they raise the birthplace question.
A close friend.
Renounced Feb 2017. 8854 by Fedex today. FBAR up to Feb e-filed yesterday.
The end of a long process that started with panic in 2011.
Done & dusted.
p.s. She decided to not file 1040 or 1040NR as she was below any conceivable earnings threshold for 2017. We asked numerous people including Phil Hodgen but never got any answers. That should just about wrap it up. I should disappear for a while and get a life.
All roads lead to renunciation. Don’t expect Lucy to hold the football.
here’s my case
i left the us at 6 month old ,both of my parents are non us person,i will have a 1st appointment in italy for the
renunciation process,my net worth is way below the ext tax threshold but i will be a covered expat since i have never filed tax returns nor fbars.i do not own any taxes anyways but the process of filing is too complicated and i do not want to spend another 2 or 3k to pay a us tax lawyer.
So i will renounce and on the form 8854 ,will write non compliant tax wise or can i just not sign anything at all and just renounce with 0 notification to the irs.i’m not in the system since ì never filed.
What would be the consequences?
thanks