Cash and real estate foreign inheritance

[vrflash]

I received cash and real estate (a share in an apartment) foreign inheritance this year (2023). The cash is in that country's bank account in my name. I want to sell my share to my brother who resides in this country (Israel) and transfer all the money to the US. I'm a US citizen and reside in the US. How do I report all this to the IRS?

[tagteam]

The sale of the real estate is the sale of a capital asset which, presumably, was held for personal use.

As a result, you report the sale on Form 8949 but you cannot recognize a loss (if any) since the buyer is a related person (your brother).

[vrflash]

Thank you. 

Does it matter that it's a foreign country's asset? Is that the only form? 

[tagteam]

I am not sure what the foreign country might require. I will page @pk

[pk · Accepted solution]

@vrflash , agreeing with @tagteam , that the sale of partial ownership ( share ) of realestate is a sale  of capital asset  to a related party . 

(A)  You report this just like  disposition of  capital asset  in the USA ---

1.    type of acquisition  ( inheritance ),,

2.    acquired  date  ( when actually ownership was affected  i.e. transferred by the estate of the demised ),

3.     basis  ( FMV of the asset /share on the date of death of the decedent  plus  cost of any improvements  LESS any allowable depreciation iff used as income generator in the meantime )

4.     Sales Proceeds  ( FMV at the time sale/ transfer to the relative )  LESS any sales expenses and transfer taxes etc..

5. The gain is taxable  ( ordinary ).  Losses are not recognizable because of transfer between related parties.

Your report all this on form 8949 and to schedule -D

  ( B )    Because this is a inheritance / gifts case from a foreign person / estate/ trust , you also have to report  the bequeathal  on form 3520  ( assuming g that the cash you were bequeathed is  equal or more than US$100,000  -- this is only an informational reporting with no tax consequences.

(C)    Because you have a  Foreign Bank account and you would have had  more than  US$ 10,000 sometime during the year , you must report this account  details  ( for FBAR purposes  ) on form 1114  ( ONLY online reporting at www. FinCen.Gov )

(D)  From a reading of the  US-Israel Tax treaty, there may be tax consequences of the transfer of the ownership ( sale of real estate ) and if any taxes are indeed levied, that tax  may be eligible for foreign tax treatment  ( credit / deduction).

(E)  generally transferring monies to the USA  ( Bank to Bank transfer) is not a tax item -- depending on the amount the bank may raise SAR as a routine matter . However if the amount is above a trigger point ( i think it is around US$10 million ) there is US Treasury permission required .

Please also note that  FBAR form 114 and form 3520 do not go with your return for the tax year --- see  instructions at www.irs.gov

Does this help / answer your question(s) ?   Is there more I can do for you.

pk

[vrflash]

Wonderful, PK. Thank you. A question. You wrote:

 ( B )    Because this is a inheritance / gifts case from a foreign person / estate/ trust , you also have to report  the bequeathal  on form 3520  ( assuming g that the cash you were bequeathed is  equal or more than US$100,000  -- this is only an informational reporting with no tax consequences.

Is it only cash that counts? The cash was less that $100K but the real estate doesn't count?

Mark

[pk · Accepted solution]

@vrflash  form 3520 requires  recognition of ONLY cash because  this is  not rtecognize3d anywhere else -- everything else  will have a basis  and therefore at disposal  the gain can be taxed ( I am not sure I understand the actual thinking  behind the  recognition requirement  for cash since US does not have wealth tax  or unexplained  wealth growth).

[vrflash]

Thank you.

[Opus 17]

I agree.  The IRS will only tax the real estate when you sell it, so they don't need to know about it now.  The IRS wants to know about large amounts of cash coming into the hands of US taxpayers, partly to watch out for money laundering and partly to watch out for tax compliance issues -- undisclosed money might be business profits or money from selling an asset.  So they want you to declare cash that is otherwise not taxed (gifts and estates) just to help keep track.  

[vrflash]

As I wrote in my original post, I am selling to my brother the share in the real estate I inherited.

Thank you,