Do I report this Inherited House Sale?

[mdd108]

I inherited a house overseas.   The house was sold by the executors of the will (on my instruction to pay my inheritance tax bill) and was never transferred into my name - the beneficiary.  Do I need to report this sale on my tax return?

[JosephS1]

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 the foreign sale of this house (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 your basis (in USD). Your basis is usually the purchase price plus any capital improvements made to the property (all in USD). Since you indicated you inherited the property, the basis will be the market value as of the date of death of the owner from whom you inherited the property from. 

The Internal Revenue Service has no official exchange rate. In general, use the exchange rate prevailing (i.e., the spot rate) when you inherited the property, and sold the property. Please refer to the following IRS links for more information about Foreign Currency and Currency Exchange Rates and Yearly Average Currency Exchange Rates

To enter this transaction in TurboTax, log into your tax return and type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". TurboTax will guide you in entering this information (see step 6 below)

Alternatively, 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 desktop)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax desktop)
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)
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 the property
   4. Sales Proceeds – Total amount received for the property (in USD)
   5. Cost Basis – since this is an inherited property, the cost will be the market value as of the date of death.
   6. Adjustment Amount – leave this box blank

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

If you paid foreign taxes on the this transaction, which you indicated you did, 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.

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.

To be directed to the US Treasury Government Website to prepare a Report of Foreign Bank and Financial Accounts, click FBAR (TurboTax does not support this form)

@mdd108 

[mdd108]

@JosephS1 even if the house was not officially mine as had not been transferred into my name but was an estate sale.    Inheritance Tax - Capital Acquisitions Tax was paid - the foreign government took the entire sale proceeds which reduced my Inheritance tax bill.  

[JosephS1]

I cannot tell you not to enter the transaction as the IRS follows a routine that is referred to as "substance over form" and of which in your case you did have some control by the ability to have the property sold.  I can tell you that if you do decide to enter the transaction there will not be a tax effect as sales proceeds and costs equate so the transaction comes out to zero.  Also, since the property was never in your name and you never opened an account, there is no need to worry about FBAR reporting as you can truly say you did not have a foreign account.

@mdd108 

[mdd108]

@JosephS1  The FBAR is a completely different manner and I understand the procedure for that. If I add the sale of this inherited property I will have a capital loss as the sale price minus the expense of sale = a loss. This is  to my benefit for IRS Taxes purposes and I do not what to gain a benefit  for this and future years if not entitled. 

[DaveF1006]

Regardless on whether or not the house was ever placed in your name, you still paid taxes and received the proceeds from the sale, since you were the beneficiary of the estate. As a result, you will report this on your tax return. 

Just an FYI, you do need to report this on Form 3520 if you received more than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests. Turbo Tax does not support the filing of this form but here is a download copy that you can use to fill out and send in separately to the IRS. Use this source to determine where to send this form to.

@mdd108 

[mdd108]

thank you - yes I included the property - Thanks for the Form 3520 reminder - its in the mail to the IRS