inheritance

[jlquirosjr]

I will inherit assets (real estate) from my father's will in a foreign country.  What, if any, are the tax consequences?  Any time limitations from time of passing and amounts allowed?

[SoCalGal21]

Hi jlquirosjr - the initial question is what is your status?  For US Citizen/Green card/Substantial Presence Test passed. you would be required to report any income earned on the property and any expenses .

If you inherited land worth $100,000 or more from a foreign person, you have to report it by filing Form 3520. The receipt of the land is not taxable. Inheritance taxes are only deductible on an estate tax return, so that would not apply. You have to report the sale of the land in the year the sale occurs.  

 It is reported on Form 8949 and Schedule D. If you have a gain, the gain is taxable, but it is a long term capital gain, so it has a lower tax rate. 

You get a stepped up basis on foreign inherited assets. The basis is the value on the date of death, (or an alternate valuation date if elected by the executor). 

The alternate valuation date only applies if a US Estate Tax Return is required, so that may not apply to this case. 

The delay in transferring the assets does not change the basis. 

Foreign inheritance / gift questions - TurboTax Support - Intuit

[carmen_t]

Hello and good tax planning questions.  Typically inheritences are not taxable.  However, the earnings from inhertences are taxable.  For example, if you inherit the property, then subsequently sale the property then the gains will be taxable.  The gains will be calculated based on sale proceeds less basis.  There are two typical ways that are usually used.  One is the FMV on the date of the decendent's death or FMV of the property on alternative valuation date.  I also linked an IRS article below.

IRS link 

[Opus 17]

Both are good answers.  They assume you are a US person for income taxes (that means a citizen or green card holder anywhere in the world, or a resident alien.)

Money you inherit is not taxable.  However, if the amount (coming from overseas) is more than $100,000, you must report it.  You must also file an FBAR report if, during the year, you own or control a foreign bank account worth more than $10,000 US equivalent.

Property you inherit is not taxable. (Property includes real estate, personal property like jewelry and other items, and investments like stocks, shares and bonds.)  However, if or when you sell the property, you may have a taxable capital gain, if you sell it for more than the fair market value on the date the previous owner died.  You may want to spend some money for a proper appraisal to document the value.

Income generated by inherited property or money is always taxable (bank interest, stock dividends, rent, etc.)

Some countries might levy an inheritance tax on the heirs. This tax is not eligible for a foreign tax credit on your income tax since it is not an income tax, but an inheritance tax. However, if you pay an inheritance tax, you can use that to adjust your cost basis.

With real estate, you need to know your cost basis.  When you sell, your taxable capital gains is the difference between the selling price and the cost basis, regardless of the amount of actual cash that comes out of the sale.  For inherited property under US law, your cost basis is equal to the fair market value on the date the previous owner died.  You can increase your cost basis by the cost of improvements you make the to property.  You must decrease the cost basis if you use the property in business or as a rental and take or are entitled to take a deduction for depreciation.  Unlike some countries, cost basis is not adjusted for inflation under US law.  If and when you sell the property, you calculate your US taxable gain income using US law, even if the foreign country calculates your tax in a different way.  It may be to your advantage to pay for an appraisal now, to document your cost basis, and keep with your important tax papers for when you sell. 

[jlquirosjr]

I am a US citizen.  Thank you very much for your responses.  It will help me and my heirs...........

[SoCalGal21]

Are there any other questions we could help with on this?  We want to be sure you feel you understand all the tax consequences of this.