topic My dad sold land in a foreign country and sharing the proceeds with me and my siblings. in Deductions & credits

My dad sold land in a foreign country and sharing the proceeds with me and my siblings.

azelea24 — Sun, 01 Sep 2019 01:15:32 GMT

My dad wanted to sell the land and give the proceeds to me and my siblings now versus after he passes in order to save us the headache of dealing with it when he's not around. The buyer of the land wire transfered my share into my account (all within US). Is this technically a gift from my dad or should I consider it income from a land sale, since the money I received came directly from the buyer? I ultimately want to know what the tax implications (planning ahead) are and how I need to report it. Thank you!

Re: My dad sold land in a foreign country and sharing the proceeds with me and my siblings.

pk — Sun, 01 Sep 2019 03:57:22 GMT

@azelea24 , first are you US citizen/resident? Is your dad a US citizen/Resident? Second where is the property situated ? Third what type of property ( residential, undeveloped land, agri land or what ) ? Is the buyer related to you or your father ?

Generally, the disposition of the land would be reported on your father's return as a capital asset disposition and is taxable. The proceeds that you and your siblings receive ( post tax ) will be treated as gift from your father -- if the amount per donee is more than the free amount for the tax year then your father will have to file the form 706 to report the gifts -- it is not a tax event but counts towards his unified gift / estate free tax amount.

If your father is not a citizen/resident of USA i.e. a non-resident alien, then gifts of more than $100,000 from a foreign person/trust must be reported by the recipient on form 3520.

TurboTax will help you fill out the necessary forms

Re: My dad sold land in a foreign country and sharing the proceeds with me and my siblings.

azelea24 — Sun, 01 Sep 2019 04:30:48 GMT

Thanks @pk ! We are both US citizens. The property was in Mexico and it was undeveloped land used for agriculture. The buyer was not related to us. Also, my share is about over the $15K gift amount allowed per year. My dad hasn't done a tax return since he retired and started receiving his SS benefit. Will he need to file a tax return to report the sale of the land even though he gifted most of the proceeds from the sale to his children? What happens if he doesn't report it because he doesn't file a tax return? Will my siblings and I get taxed on the gift we receive if its over the $15K limit and we report it on our taxes?

Re: My dad sold land in a foreign country and sharing the proceeds with me and my siblings.

Anonymous — Sun, 01 Sep 2019 07:26:15 GMT

when you say we are both US citizens, I assume this refers to your father and you. Also, since you say he's receiving Social Security, I'm also assuming he's over 65. One filing requirements depend on gross income, Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. The sale of the land would be reported on schedule D. so only the gain, if any, not the gross proceeds would be taken into account

Gross income means all income received that isn't exempt from tax, including any income from sources outside the United States. Don’t include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2018 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly)

once you figure out gross income based on above filing is required

if single and gross income at least $13,600

married filing joint $25,300 if only one is over 65 or $26,600 if both

married filing separate - just about any amount

(these amounts are slightly higher for 2019)

even if not required to file an income tax return a gift tax return is supposed to be filed.

can't say everything that the IRS would do to your dad if they catch the non-reporting if a income tax return is required. At the very least they would try to collect the tax, penalties and interest due. There is a minimal penalty of about $200 for failure to file gift tax return assuming no tax is due.

If he lives in a state with an income tax, that return would also be required.

Re: My dad sold land in a foreign country and sharing the proceeds with me and my siblings.

pk — Sun, 01 Sep 2019 18:51:49 GMT

@azelea24 generally agreeing with the comments by @Anonymous and adding a little--->

(a) I am assuming that this agricultural land is not "etijido" land per MX laws

(b) your father's basis in the property is either acquisition cost ( converted to US$ at the time of acquisition ) or if by Fair Market Value at the time of death of the decedent ( if by inheritance ) . If there were any improvements made then those costs add to the basis of the property.

(c) the gain may be taxable income -- GAIN is the sales price LESS sales expenses ( commission, advertising costs. surveys, transfer taxes etc. ) LESS Basis in the property.

(d) Ideally he should file a return showing the disposal of the property, even if there is no taxable income. Note however that this gain income may make his Social Security income partly taxable. I say file because this is safest way to make sure the IRS will not start auditing and files are cleaned out.

(e) the gift that you receive is not taxable to you. Also note that gift reporting is based on the free amount per donor per donee. Thus if the limit for the year is 13,000 and you receive $18,000, you father and your mother ( when they file jointly ) each is eligible to claim the free limit i.e. their joint free limit is $26,000 per child/beneficiary -- hence no reporting of the gift may be required.

If you need more help, please feel welcome to ask more questions/help by commenting on this thread

Adios