Hi,
I purchased a personal use property in a foreign country. The agreement was signed in 2011, when the construction started. The payments were made every year until 2016 and then I got the possession. Will the Cost Indexation/Adjusted Basis be calculated based on 2011, when the contract was signed? Or will it be calculated separately for each year from 2011-2016 based on the payments made for that year?
Thanks.
It will be based on the payments you made in total. The cost basis will be what you actually paid for it, regardless of when or how many years to pay for it. And it doesn't change over time, unless there was additional funds added to the property such as capital improvements above and beyond your purchase price.
Thanks for your response. I have a follow-up question.
Would I use the currency exchange rate that was effective when the contract was signed (2011) or would I use separate currency exchange rates that were effective when the payments were made?
You would use the separate current exchange rates that were in effect when the payments were made. That is the actual amount you paid versus the amount that you planned to pay since exchange rates fluctuate so much.