Reporting for sale of inheritance rights with overseas assets. All parties are US citizens.

[RomanyUY]

My husband died in Uruguay in 2022. Both of us are US citizens and permanent legal residents of Uruguay.

Under Uruguayan law, a part of his Uruguayan assets go to his son, a US citizen and US resident.

Since his son has no need for half a house in Uruguay, we planned for me to buy his interest in the house. We are currently STILL working with an attorney as to how to do this without his son having to travel to make it happen. It will end up with either I buy half the house or I buy his inheritance rights. The money for the purchase will be sent from a long established US bank account to his son's US bank account.

For US reporting and taxation, does it matter whether I buy his half of the house or his inheritance rights? I know he would have to report the sale to me on his tax return but would it be considered real estate or something else if I buy the inheritance rights? A small part of his inheritance would be his share of bank accounts.

Basically - He inherits USD 20K in cash and $100K in real estate from the Uruguayan estate of a US citizen. I pay him from my US bank account rather than do a USD 120K wire transfer to my Uruguayan account and then wire the USD 120K to him back in the US.

What is the reporting? I don't see anything other than Sched D for the sale of either the real property (assuming they INSIST on putting it in his name first) or his inheritance.

Thanks!

[ThomasM125 · Accepted solution]

Both the inheritance rights or the real property would be investment property to your son. They would both be reported as such on schedule D on the federal tax return as the sale of investment property. His cost basis would be the same amount you are paying him so either way you do it he won't have any net income to pay taxes on. So, you should consummate the transaction which ever way is easiest for you.

The cash that you transfer would not have to be reported on his tax return, as that is an inheritance, as opposed to the property sale, which is the sale of inherited property. You report that as the sale of investment property in TurboTax.

[RomanyUY]

Thank you. This is basically as I thought but wanted to be sure I wasn't missing anything important.

Just to be sure....

There's money in a bank account in Uruguay. Under law, the son has inheritance rights to it. IF I transfer the amount to him FROM THE US, there's nothing to report to the US, not even FBAR since the account in Uruguay will never be in his name.

It's only the amount that is applicable to half the house, which will be the value as of the date of death, that will go on Sched D.

Now to convince the bureaucracy in Uruguay.