Will husband owe taxes for apartment sale? He owns it w/ his 2 siblings. 1 sibling/owner has lived there rent-free for 2+ years and is buying it from hubs his bro.

[paloma625]

My husband is a U.S. green card holder and Peruvian citizen. The apartment he and his siblings are selling is in Peru. Since the U.S. and Peru don't have a tax treaty, as a U.S. green chard holder, on his U.S. IRS tax return he must pay taxes on income from the U.S. and Peru.

[DS30 · Accepted solution]

It depends -

Since your husband is considered a US citizen or resident (as a green card holder), he must report all worldwide income on his US income tax return. This would include the sale of foreign real estate. However, he will only be taxed on his proportional share of any capital gain (reported in USD) on the sale of the Peruvian apartment.

The capital gain would be the amount of sales income over the basis in the property (basis being the original cost plus the cost of capital improvements to the property after purchase but before the sale). Click this link for further information about reporting the sale of a capital asset. If he had a capital loss on the sale of the property, he will not have to report the foreign sales transaction on his US income tax return.

Sale of a Second or Investment Home -

To enter this transaction in TurboTax, log into your tax return (for TurboTax Online sign-in, click Here and click on "Take me to my return") type "investment sales" in the search bar then select "jump to investment sales". TurboTax will guide you in entering this information (see step 6 below)  

Alternatively, to enter this transaction in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab
2. Next click on “Wages & Income”
3. Next click on “Add more income” (then "See list of all income")
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
6. 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)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select Second Home (or everything else if investment home)
9. Some basic information:
1. Description –  Usually the address of the property sold
2. Net Proceeds – Net proceeds from the sale 
3. Date Sold – Date you sold the property
10. Tell us how you acquired the property - purchased
11. Any business or rental use? - if no, then select personal use only (Please note, if personal use only, you will not be able to deduct the capital loss since no capital loss is allowed for a personal use capital asset.)
12. Some Basis information
1. Date Acquired
2. Original cost basis
3. Cost of improvements

Although the transaction needs to be reported in USD, the Internal Revenue Service has no official exchange rate. In general, use the exchange rate prevailing (i.e., the spot rate) when the property transactions (the original purchase, capital improvements (if any) and the sale) took place. Please refer to the following IRS links for more information about Foreign Currency and Currency Exchange Rates and Yearly Average Currency Exchange Rates.

If your spouse paid foreign taxes on the this transaction, he will be allowed an offset for these foreign taxes on his US tax return.  If he take a foreign tax credit, his US tax liability will be reduced by the amount of taxes that he would have paid if the transaction took place in the US (see this link Claim Foreign Tax Credit).

[paloma625]

Thanks, that's very helpful. My husband's father purchased the property 30 years ago and put the title in the name of my husband and husband's two siblings when they were children. If 30 years ago the apartment was $30k and it's now $130k, so his share of the "gain" would be $33k. Does that still apply even though the apartment was essentially gifted to him and his siblings as children? There father is alive, so it wasn't inherited.

[DS30]

Yes, if your husband's name is on the title to the property as an co-owner, he will have to report his portion of the gain (in USD) on his US income tax return. Since the property was gifted to (and not inherited by) your husband as a child, he will use the original basis in the property to determine his gain. Just make sure to check whose names are on the title before the sale because if the father's name is still on it, your husband's proportional interest may be less than 1/3.

[paloma625]

The sale is happening in 2018, but I entered it into 2017 TurboTax to calculate about how much we'll owe next year (and then I deleted it). I estimated a $34k gain (if the original purchase price was $30k in the 1990s and his share was $10k, and now his proceeds from the sale were $44k). With $34k in gains TurboTax calculated $9,000 federal tax, more than 26% (+ state tax). Could this be correct? I thought I'd read capital gains were usually taxed at no more than 15%

[DS30]

Actually, since the sale will take place in 2018, the new tax laws have changed the capital gains tax brackets so you will not be able to use the 2017 tax software to predict the 2018 capital gains.