Tax implication for proceeds from selling an inherited foreign property

[christine2]

Hi -  my grandmother passed away recently and she left me a small property in Europe.  The property was sold few weeks ago and I need to know what would be the best way to transfer the monies into my US bank account and also what forms I need to file with the IRS.  The proceeds from the sell are rather small (under 20k US dollars). I also paid about $800 in taxes for which I believe I should file Form 1116.  It is also my understanding that my bank account will reports the wire transfer to the IRS so I need to know how to proceed further.  Thank you! 

[srinath_chavali]

Does the answer to this question change if I don't transfer the monies to the US?

[DS30 · Accepted solution]

If you are a US citizen or resident, you are required to file a US tax return for income from all sources both domestic and foreign. Therefore, you will need to report this Inherited land sale (converted into US dollars) on your tax return as the sale of a capital asset. To know the actual amount of the capital gain or loss on this sale, you will need to know not only your sale's proceeds (in USD) but also the your basis in this inherited property (in USD). Your basis in inherited property is usually the Fair Market Value (FMV) at the time of inheritance.

To enter this transaction in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. On the next screen you will enter the sales information as follows
1. Description – usually the address of the property sold
2. Date Sold – Date you sold the property
3. Date Acquired – Date you inherited the property
4. Sales Proceeds – Total amount received for the property (in USD)
5. Cost Basis – Fair Market Value of the property (in USD) at the time of inheritance.
6. Adjustment Amount – leave this box blank (see attached screenshot #2)

Click this link for further information about reporting the sale of a capital asset

If you pay foreign taxes on the this transaction, you will be allowed an offset for these foreign taxes on your US tax return.  If you take a foreign tax credit, your US tax liability will be reduced by the amount of taxes that you would have paid if the transaction took place in the US (see this link Claim Foreign Tax Credit). If you take a foreign tax deduction on Schedule A, you will be allowed to deduct the full amount of the foreign taxes paid but you will need to itemize (which could limit your ability to take the full deduction). The TurboTax software will help you determine which of these options will lower your overall tax liability.

Once you determine the amount of your gain on the sale, you will need to convert the gain from the foreign currency to US dollar (using a daily exchange rate at the time of both the purchase and the sale). Currently the maximum capital gains rate in the US is 20%. Depending on your tax bracket, you may owe more than 20% due to such factors as Alternative Minimum Tax (AMT) and the additional Net Investment Income Tax (NIIT) of 3.8%

Please note : If you have foreign bank accounts, you may be required to file a Report of Foreign Bank and Financial Accounts (FBAR) if are a US citizen or resident and:

1. you had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. (Please note that your UK pension fund is not currently included (see additional notes below)).

To be directed to the US Treasury Government Website to prepare a Report of Foreign Bank and Financial Accounts, click FBAR

[angela94]

Re Foreign real estate Inheritance, sale and taxes.

My husband inherited an apartment located in Germany worth about $100K in 2018. At the time he paid $15K in inheritance taxes. I didn't think to report that as foreign taxes at the time. (We are US Citizens living in US filing jointly.)

It was soon rented and we reported that income, expenses, and related German taxes in 2018 and 2019. 

He sold the apartment this year. I don't know yet what the net profit or loss will be.

I reported a small amount of foreign divided income and foreign taxes paid, but did not report the $15K in inheritance taxes on our 2018 return? Should I have, and if so, where? Or do I report it in the year of the sale of the property? I tried going through the amended tax return process for our 2018 taxes in Turbotax, and adding the amount to our foreign taxes paid, but at this point its saying I would owe more money by including the $15K paid in foreign taxes. 

Second question: In figuring out the net profit or loss, do I figure out USD sales minus USD inherited value (conversion rate at the time of each individual transaction), or do Eruo sales minus Euro inherited value, and then convert to USD using the conversion rate at the time of sale?

Thanks for any help you can offer.

[Milyvarios]

In 2018 I inherited my mother’s house in Peru upon her passing.  My mother was a dual citizen of the US and Peru.  The house was sold in March, 2022.  It is my understanding that I must report the inheritance on my 2022 and sale of the house and of monies on my 2023 taxes to the IRS immediately. Where do I input my inherited property from ‘18 from my mother who had a dual citizenship and where do I input the money from selling it with no profits on my 2023 taxes.  Thank you.

Thank you,

[DaveF1006]

Actually you will report this next year on your 2022 tax return on the sale of the house. You will not report this on your 2023 tax return. This is how it is reported.

1. Click on the Federal 
2. Click on income and expenses
3. In the full list of income items on your return, scroll to the section labeled Investment Income.
4. Click start or revisit on the line labeled Stocks, Mutual Funds, Bonds Other.
5. If you are not using Premier, TurboTax will require you to upgrade in order to enter the sale.
6. After you have upgraded, continue through until you reach the screen labeled "Did you get a 1099-B or a brokerage statement for these sales?" Answer no.
7. Choose the appropriate asset from the list on the screen labeled "Choose the type of investment you sold".
8. Continue through the screens that follow.

You will need to know the total sales proceeds (if you inherited a share of an asset, you need your portion of the sales proceeds) and your portion of the inherited cost basis (the value of the asset on the date of death of the person from whom you received the inheritance).

As far as your question regarding Where do I input my inherited property from ‘18 from my mother who had a dual citizenship, this information is not needed in your tax return.

Milyvarios

[Milyvarios]

Hi, thank you so much for your prompt response.  If I may, I would like to ask my questions in a more detailed way.  Thanks again,

Hello, I live in NC and I have a dual citizenship Peruvian/USA. In 2018 I and my brother (green card holder) inherited my mother’s house in Peru upon her passing.  My mother was a dual citizen of the US and Peru.  The house was sold in March, 2022.  Do I need to report my inharitance property and if yes how? I have read a way to report it is using form 3520 but it says it is for when the donor was a non us citizen and my mom was.

Do I need to report the amount of the sale even though the sale price was under the FMV from 2018 and it was a never a rental property and is yes how? And last, I am planing on depositing the check  from the sale in a bank Account in Peru for only about a week because I am planing on wire transferring the money to my account in the US and it is more than $100,000.  What do I need to do about all this 3 situations in order to comply with the IRS including reporting in my taxes and/or forms. Thank you so much!

[MarilynG1]

There's nothing to report about inheriting your mother's home in 2018.

Report the sale of your inherited home in 2022. The Cost Basis for determining any Gain/Loss on the sale would be the FMV of the home when your mother passed away. 

If you weren't renting the home after she passed, click this link for more info on how to report the Sale of Inherited Home. 

If you had more than $10,000 as a Maximum Balance in a foreign bank account,  you do not need to file a Form 8938 "Statement of Specified Foreign Financial Assets", which TurboTax handles. 

However, you would need to file a FinCENForm 114, which is not handled by TurboTax.  Click here to file FinCENForm 114.

File your Form 1040 normally and file the FinCENForm 114 from the above-attached link.   Also, see this for reference: Comparison of Form 8938 and FBAR Requirements.