My parents are us citizens They sold a property in South Korea for $ 1.5 million What are the tax consequences if they wire full amount to my checking account in US

[andrewlee6]

I’m a us citizen

[Opus 17 · Accepted solution]

There are no tax consequences for you.

As US citizens, your parents are required to file a US tax return and pay capital gains tax on the gain (amount the property increased in value since they bought it.)  They also have to file a gift tax return to report the gift to you, and possible pay gift and estate tax depending on the lifetime amount of large gifts they have given.  But you don't pay tax on a gift you receive.  And you don't even have to report a gift from a foreign person of more than $100,000 because, if your parents are citizens, they aren't "foreign persons" for that reporting requirement.

[andrewlee6]

The property that my parents sold was not bought by them instead the title was transferred to my father by his brother the property belonged to my fathers brother.       is this considered capital gain ?
Also my parents haven’t never given large gifts so do they have to pay gift and estate tax ?
Thanks

[Opus 17]

If the property was given to your parents by a relative, then their cost basis is whatever the relative originally paid for the property, plus the cost of any permanent improvements (new roof, etc.), minus depreciation that was claimed or could have been claimed if the property was used in business (commercial, residential rental, etc.)    (Unless the relative died and they inherited the property, then the rules are different but your statement is unclear.)

Their capital gains is the difference between the selling price and the cost basis.  They will need to make diligent efforts to prove what their cost basis is (their relative's cost plus improvements).  If they are audited, the auditor does not have to allow any basis that can't be reasonably proven.

For example, if the property cost $500,000 and the brother made $100,000 of improvements before gifting it to your parents, the cost basis is $600,000.  Then they would have a capital gain of $900,000.  However, if the property was commercial, and it had been owned by the brother, it would have been subject to about $300,000 of depreciation, so the cost basis becomes 500 + 100 - 300 or $300,000 and they have a $1.2million gain.

They may need to work with a tax professional to properly report this gain.

There is a lifetime limit of $5.4 million that can be gifted or transferred in an estate tax-free; over that amount, gifts and estates become taxable.  For a $1 million gift, no tax will be owed but a gift tax return must be reported so the IRS can record the gift against their lifetime tax-free limit.

[trentwlee]

opus 17 thank you. they are paying capital gain tax in south korea since the property was sold in south korea. do my parents have to pay capital gain tax in the USA. does that me they have to pay capital gain taxes twice ? once in south korea and USA ?

[Opus 17]

If they are US citizens they must report all their world wide income on a US tax return and pay the appropriate tax.  If they also pay income tax in a foreign country there is a deduction or credit for foreign taxes that should partly or completely offset the US taxes.  

The transfer of that much money will automatically be reported to the IRS, whether they transfer it to themselves or you.  The transfer itself is not taxable but it may put the IRS on the lookout.  Professional help is recommended since the cost of a mistake could be considerable.