Yes, if you are a US citizen then you must report the sale and proceeds from the inherited home in Portugal. The IRS requires taxpayers to report income from all sources both domestic and foreign. It doesn't mean that you will have to pay US tax on it, because you can offset the foreign taxes that you paid to Portugal on your US tax return. TurboTax will help you with this process.
To enter this transaction in TurboTax Online or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
- Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
- Next click on “I’ll choose what I work on”
- Scroll down the screen until to come to the section “Investment Income”
- Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
- The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
- Since you did not receive a 1099-B, answer “no” to the 1099-B question
- On the next screen you will enter the sales information as follows
- Description – usually the address of the property sold
- Date Sold – Date you sold the property
- Date Acquired – Date you inherited the property
- Sales Proceeds – Total amount received for the property (in USD)
- Cost Basis – Fair Market Value of the property (in USD) at the time of inheritance.
- Adjustment Amount – leave this box blank (see attached screenshot #2)
Here is a TurboTax article that explains more about reporting the sale of foreign property.
You may also be required to file two special forms with your 2020 tax return:
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The name of the form to file If you have any questions or require technical assistance using the BSA E-Filing system, you may call them at 866-270-0733; or if calling from outside the United States, 313-234-6146.
Report of Foreign Bank and Financial Accounts
- Foreign Accounts Tax Compliance Act (FATCA)
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The IRS receives information about foreign assets on Form 8938 on your federal tax return.
You must file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. You don’t file the FBAR with your federal tax return.
Here is an IRS article that explains the comparison between FATCA and FBAR requirements.
