Selling a US Rental as a UK Resident: Ten Years of Rent, and What Was Actually Left

Most articles about US property tax explain the rules. In this one I am running the actual numbers on a real house.

Here is the short version.

Over ten years the property collected $106,000 of rent. After operating costs and both UK and US taxes, the owner kept about £2,800 of income. Roughly £280 a year.

And yet the deal still returned 202%.

The money was not in the rent. It never is for UK investors, because of the heavy tax regime at home.

The house

5240 Brooklyn Avenue, Kansas City. Three bedrooms, one bathroom, 1,082 square feet.

I should say plainly that this is not a house I own. It is a real property with a real record, which is why I picked it.

One thing the record shows that is worth knowing. The same house was listed at $40,000 in March 2016 and sold to an investor at $85,000 in August. So it was bought cheap, renovated over the summer, and sold on as a finished rental. Which means one can assume the roof, the furnace, the water heater and the air conditioning all started their lives in 2016.

Make a note of that, because it matters later.

Ten years of rent

The rents below are real. They come from the actual letting listings on the property.

So far so reasonable. An average $2,600 net income per year on an investment of around $25,000.

Then the tax.

That is about £280 a year, on a house that collected over a hundred thousand dollars of rent.

America's IRS took almost nothing. HMRC took nearly everything.

Why so little was left

There is one rule doing most of the damage and it is not an American one.

In the UK you cannot deduct your mortgage interest from your rental profit. You get a tax credit worth 20% of it instead. That rule is usually called Section 24, and most people think it only applies to UK property.

It does not. It applies wherever the property is, including America.

On this house the owner paid $39,061 of mortgage interest over ten years. America let them deduct all of it. Britain gave them 20% back and taxed the rest.

So HMRC was taxing money that had already gone to the mortgage lender. That is why the UK bill was £15,924 on cash flow of only $26,111.

I have gone through that rule properly, with the math to back it up, in UK tax on US rental income.

The one thing to remember: if you are a British owner of a US rental, the income is taxed almost entirely at home. Work out the UK bill before you buy, because it is the number that decides whether the rent is worth having.

What the sale produced

Now the exit, and this is where it gets better.

Two things worth pulling out of that.

The mortgage does not reduce your tax. Both countries tax the gain on the property, not the gain on your equity. Someone who paid cash for the same house and sold it the same day pays exactly the same tax. The loan is invisible to the calculation.

And the UK bill is small compared to the income tax. £3,202 on the sale, against £15,924 across the ten years of rent. The capital gain is taxed more gently than the income was.

The 15% that is not a tax

There is one thing about selling American property that catches every foreign owner, and it is a cash flow problem rather than a tax one.

When a foreign owner sells, 15% of the whole sale price is withheld at closing. Not 15% of the profit. Fifteen per cent of the price. It is called FIRPTA. There is more on how it works, and on the US side generally, in my US tax guide for foreign investors.

On this house that is $21,750, taken before the seller sees anything.

But 15% is not automatic, and almost every article treats it as though it were. The rate depends on who buys the property and what they will do with it.

Both residence exceptions need the buyer to be an individual who will live there for at least half the days the property is used, in each of the first two twelve month periods. They sign an affidavit confirming it.

Which gives you a decision. A tenanted rental usually sells to another investor, which locks you into 15%. Selling with vacant possession to somebody who will live in it can take the same house to zero. It does not change the tax you owe. It changes how much of your own money is tied up in the meantime.

The actual US tax was $6,242.

So $15,508 of the seller's own money sits with the IRS until they file a return and claim it back. That can be the best part of a year.

It is not lost. But it is not available for your next purchase either, and nobody warns you.

There is a form that fixes it. If you apply before closing, using Form 8288-B, the IRS can agree to withhold a smaller amount based on your real expected tax. Almost nobody does it. Ask your accountant about it before you accept an offer, not after.

You can run your own figures through our FIRPTA withholding calculator, which shows what is held back, the real tax on the gain, and the refund you would be owed.

The depreciation sting

This is the part I want British owners to understand.

America lets you claim depreciation every year, writing off part of the building's value even though you spent nothing. On this house that reduces your taxable income by $24,727 over ten years.

For a UK owner that deduction was worth almost nothing. It reduced the American tax bill, but HMRC simply collected what America did not.

Then on sale, America takes 25% of it back.

Of the $6,242 of US tax on this sale, $6,182 was clawing back that depreciation. Ninety nine per cent of the total end bill.

So the owner claimed a deduction that saved them nothing, and paid tax on it when they sold.

And here is the part that stings twice. Depreciation is meant to reflect the building wearing out. On this house it genuinely did. The systems were new in 2016 and are ten years old now. The water heater is at the end of its life, the furnace and air conditioning are getting there, and a buyer prices all of it in.

That is a large part of why this house is worth $145,000 while a fully renovated one two streets away, at 5521 Brooklyn, has just been appraised at $210,000. That one is bigger and has an extra bedroom and bathroom. It also has a new roof, new furnace, new water heater and new air conditioning. I went through what condition does to value, on five real properties, in the best buy-to-let markets in the USA.

I will say this. You should still claim depreciation anyway, because the IRS will claw back what was allowable even if you did not claim it. And if you have not been claiming it, do not panic: Form 3115 lets you catch up every missed year in one filing rather than amending old returns.

What actually made the money

Put the whole decade together.

That is a good result. Eleven point seven per cent a year, over a decade, on a modest house in a modest neighborhood. It is not going to retire you, but it beat inflation, it beat cash, and somebody else paid the mortgage the whole way.

And look where it came from. $3,791 from ten years of rent. $73,260 from the sale.

The rent paid the mortgage, covered the costs and kept the thing alive. The return came from the property being worth more, and from the tenant paying down the loan.

That is the whole argument for buying American property as a British investor, and it is also the whole argument against expecting income from it. If you want money to spend now, this is not the way to get it. If you want a deposit to double or triple over time, and the market grows at anything like its long run rate, it is a fairly good bet.

That last part matters, and I have set out what the long run rate actually is, and what happens when the market runs below it, in is buy-to-let in the USA a good investment. The financing side is in buy-to-let mortgages in the USA.

What I would check before selling

Five things, and none of them need an expert to ask about.

• Apply to reduce the FIRPTA withholding before you accept an offer. On this house it would have freed up $15,508 at closing instead of a year later.
• Get the actual tax bill history from the county. On this property the tax was $358 in 2016 and $675 last year. That is real data, free, and it tells you what the next owner is walking into.
• Work out your UK bill, not just your US one. They are very different numbers and the UK one is usually bigger. And do not assume a company structure fixes it, which I have covered in can you buy US property in a UK limited company.
• Keep the exchange rate for every date that matters. HMRC works out your gain in pounds, using the rate on the day you bought and the rate on the day you sold. Those are different rates and the difference is taxable.
• And remember the reporting deadline is not the one you think. The 60 day rule people talk about is for UK property only. A US sale goes on your normal Self Assessment return.

If you want to run the numbers on a property before you commit, the free tools in my investor starter kit will size the deal and the cash you need.

The bottom line

Ten years, $106,236 of rent, and about £280 a year of income after tax. Not much. HMRC sees to that.

But a 202% return after taxes overall.

Both of those are true at once, and understanding why is most of what a British investor needs to know about American property. The income is taxed at home, heavily, and there is not much you can do about it. The gain is taxed more gently, and the loan quietly pays itself off in the background.

Buy it for the second thing. Do not buy it for the first.

If you are Canadian rather than British, the American half of this is the same and the home country half is not. That version is in selling a US rental as a Canadian.

Remember, investing is a game of probabilities. The tax is not. It is arithmetic, and it is all available before you commit.

The full workings

Everything above, with the detail. Skip it if you do not need it.

The property. 5240 Brooklyn Avenue, Kansas City, Missouri. 3 bed, 1 bath, 1,082 sq ft. Bought August 2016 at $85,000 with a $59,500 loan at 7% over 30 years, so a $25,500 deposit. Valued today at $145,000 by reference to a full appraisal at $210,000 on 5521 Brooklyn, adjusted down for size, one fewer bedroom and bathroom, and ten year old systems.

Where the numbers come from. Property taxes are the actual county record. Rents are anchored to the real letting listings, $900 in May 2023 and $1,100 in November 2024. Insurance is fitted to a real Kansas City policy of $988 on a similar sized house in a similar area. Exchange rates are published annual averages.

Assumptions I have made. Management at 10% of rent, maintenance at 10% of rent, no void periods, no capital spending during the hold, a higher rate UK taxpayer throughout, and 7% selling costs.

Year by year

Why the UK tax is so much higher. The UK taxable profit ignores the mortgage interest, so it was about £56,800 across the decade against actual cash flow of $26,111. Tax at 40% on that, less the 20% Section 24 credit on the interest, gives £15,924.

The sale

US tax: $6,182 of depreciation recapture at 25%, plus $60 on the remaining gain. The long term gain of $49,850 sits almost entirely inside the 0% band, which runs to $49,450 for 2026.

FIRPTA withheld $21,750, so a refund of $15,508.

The return

Deposit $25,500. Income kept $3,791. Net sale proceeds $73,260. Total back $77,050. Profit $51,550, which is 202% over ten years, or 11.7% a year.

Total tax across the decade: $7,224 to America, £19,126 to HMRC. Britain collected 78% of it.