Gifting foreign real estate inheritance to relative in the foreign country

[Myweb2learn]

Hello,

What are my tax liabilities in the following case?

I am a US citizen and live in the US. In 2009 I and my two siblings inherited a house with land from mom located in Hungary. I want to gift my share to my niece who lives in Hungary. She plans to sell it with my permission on my behalf and she would keep the money received for my share as a gift. I estimate this amount would come to about 10-20K. Will i have to pay income tax or long term capital gain tax here in the US as well as gift tax? How much?

What forms i would need to file?

Since i would like to cover my tax expenses from the total of my share of the sale, should i have the money be transferred to my US bank account first then I would transfer back any amount left after my taxes or should the money go directly to her Hungarian bank account after the sale and only the portion i need to pay my taxes to be transferred to my bank account? I am not sure what receipt is needed for IRS records regarding how much money i gifted. Is there anything else i need to be aware of? 

Thanks for your advice. Ilona

[SundayInSalem]

Your US tax liability will depend on how you gift the property.

If you own the property when it is sold, then you may have a taxable transaction because you are still the owner. However, the value (cost basis) of inherited property is the fair market value on date of death, so there may be no federal income tax due if the property has not increased in value.

You may have to file a gift tax return (see below).

Is money received from the sale of inherited property considered taxable income?

If you transfer ownership to your niece prior to the sale, then there is no US income tax because you don’t own the property, it’s located in Hungary and your niece is not a US citizen or resident.

If the value of the property is more than $16,000 you would have to file a gift tax return. You would not have to pay any tax. You simply show that your lifetime exclusion is being reduced.

TurboTax has an excellent article on The Gift Tax. TurboTax does not have software to prepare a gift tax return. This is a complex return so I suggest hiring a tax lawyer or accountant to prepare this form.

[Myweb2learn]

Thank you so much for your very valuable input. It helps a lot.

One more question.

How does this other rule relate to my situation my inheritance being about 10-15K? “you don’t have to report an inheritance on form 3520  separately if it is beneath the $100,000 threshold.”

If i do not have to report, then why would i need to report the sale of such overseas inheritance from a non US citizen which i also gift to a non-citizen. The value of my part of the house (it has multiple ownership) is probably about 15K.

Thanks so much, Ilona