US Taxpayer Sold UK Rental (Cap Gain)

U S Taxpayer paid $3,300 (18%) taxable cap gain (converted to US) in UK on sale of rental prop she's been reporting on 1040/sched e each year. Report sale on 1040 as usual for a rental and file 1116 for $3,300 FTC? and that's it?
ty

Yes.
FBAR if the money was in a UK account. Possible 8938, too.

The rental activity will have been reported on Schedule E, Form 8858 and Form 1116. On sale one would:
1. Release any suspended passive activity losses
2. Recapture allowable depreciation
3. Calculate any US taxable foreign currency mortgage gain
4. Prepare a final Form 8858.
The UK requires that CGT is calculated and paid to HMRC within 60 days of sale. If the 18% tax mentioned is the amount paid with the CGT PPD return, it is not a final liability because this is only calculated when the UK personal self-assessment tax return is filed. You'd want to see the UK personal self-assessment tax return for the year of sale to know the final liability that can be claimed on Form 1116 for the year paid to HMRC.

Separately, the client may have FBAR and Form 8938 filing obligations.

If you have been preparing Form 8858, this is because you have a QBU. If you have a QBU, naturally you would not be computing a foreign currency mortgage gain. Instead, you would compute a 987 gain or loss on the termination of the QBU.

If there were a foreign mortgage and the taxpayer lived in the US, you would want to confirm that any interest paid on the mortgage to the foreign bank was properly reported on Form 1042.

Individuals purchased and lived in apartment in 2014, became a permanent US resident (Green card) in 2019. They reported 1040 sched e rental activities (in US dollars) incl paying a mortgage in. As far as I know they did not file 8858 or 1042. In 2022 sold the apartment, paid cap gain tax. Now wants to file 2022 1040. So, need to file 2022 mfj 1040 with 1116, 8938 and 1042? and 8858? ty

It may help to clarify that Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), must be filed (1) in the situation where the foreign business activity meets the definition of a foreign QBU under Reg. §1.989(a)-1(b)(2)(ii) or (2): in the situation described in the instructions to Form 8858 which refer also to the definition of a foreign branch under Reg. §1.367(a)-6T as an alternative test for the filing requirement. You'd want to get the clients opinion whether or not she wants to file an 8858.

The UK will have given the client some pro-rated PPR relief - you'll see the amount of UK tax from the 2021-22 UK return.

If there's no 8858 there will be a chunky foreign currency gain because the pound has fallen substantially. To help ameliorate US liability, you'd want to see if there are excess foreign tax credits carrying forward in addition to CGT paid in 2022 - and check if the depreciation was correct or a 3115 is required for the year of sale.

There's differing opinions on whether a simple house rental, even with a separate checking account constitutes a foreign branch. I think it is generally overkill and a needless waste of prep time and cost. Discuss with client and let them decide.

It really feels like triple overkill, but it is what it is .... thanks all for input

There is an older thread on this same topic and the unfortunate conclusion I have come to after reading everything is that if one has a foreign rental property, that under the applicable Reg. this would be considered a QBU thus requiring the annual filing of Federal Form 8858.

Here is a link to the other thread: viewtopic.php?f=8&t=23948&p=203876&hilit=8858#p203876

The two more knowledgeable individuals that have posted on this topic (no intentions to slight anyone else by that) are Guya and dellpaul so this question is directed to you or anyone else who has dealt with this issue.

Do you believe there can be a case made that a foreign rental property regardless if that is the only rental activity owned by a US TP or even if say three rental properties - one foreign and two in the US that the foreign rental property could possibly not be classified as a QBU under Reg. §1.989(a)-1(b)(2)(ii) or (2) requiring the annual filing of Federal Form 8858 ?

Do you believe there can be a case made that a foreign rental property regardless if that is the only rental activity owned by a US TP or even if say three rental properties - one foreign and two in the US that the foreign rental property could possibly not be classified as a QBU under Reg. §1.989(a)-1(b)(2)(ii) or (2) requiring the annual filing of Federal Form 8858 ?

I don't know.