How to file income portion received from sale of overseas inheritance?

[fcbdc]

Hi,

As the title suggests, I would like to know how we should file/report the income portion received from the 2023 sale of an overseas inheritance. It would be great if someone can offer details about which section in TurboTax we should include this information (if applicable).

Here is the SITUATION:

In October 2023, my wife (green card holder) sold an overseas apartment that she and her sister inherited jointly after the death of their parents in 2012. The proceeds from the sale ($60,000) were deposited into my wife's foreign account (which she opened overseas in October 2023 in order to receive the payment for the sale) then, within a month, half of the 60k were transferred from this foreign account to my wife's and her sister's US accounts, respectively.

Some additional details to be considered:
- The apartment was never rented and was used her primary home until end of 2017.
- She doesn't have any other foreign assets or bank accounts
- My wife and I always filed jointly, and we plan to do so for 2024 as well.
- I am not sure about the difference in apartment value between the two events (inheritance in 2012 and sale in 2023). -- Question: Assuming I could find an appraisal value from 2012, how and where in TurboTax should I use that information (if applicable)?

Here is what I NEED HELP with:

From what I've been reading, I understand that the following cases/actions apply
(please correct me in each case if anything is wrong):

1. Since the value of each share in inheritance is below $100K, neither my wife nor her sister has any reporting requirements before the IRS (i.e., there is no need to file Form 3520 with their tax returns)

2. Since we are filing jointly, we DON'T need to file Form 8938 (Statement of Specified Foreign Financial Assets) with IRS, because the $100,000 reporting threshold (total value of assets) for this filing case was NOT met.

3. Despite the fact that she already transferred the money to US accounts, she does need to file FBAR with FinCEN (FinCENForm 114) to disclose the existence of the used foreign account and its highest balance (maximum value during the year) -- Question: does she need to provide account statements to back up this information??

4. MAIN QUESTION: Where do you report the $30,000 share received from the sale of the inheritance in the tax return? I've seen conflicting information on this site about similar cases, where this type of transaction was suggested to be treated as investment income or sell of second home, but also saw advice about it not being a taxable event but a reportable event (i.e., that you should report the sale on your tax return with zero dollars in profit).

I would appreciate your valuable input for clarifying this filing situation, and I'm looking forward to your responses.

Thank you!

--

References I used:

https://www.irs.gov/instructions/i3520

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

https://www.irs.gov/forms-pubs/about-form-8938

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

[fcbdc]

@SusanY1 

@DaveF1006 

@ pk

I noticed that you guys had helped with similar questions. I hope you don't mind if I address my cry for help to you here directly. Thank you in advance for your help!

[SusanY1]

Your understanding of points 1-3 is solid.  There appears to be no 3520 requirement (that would have been in the year inherited, anyway, but it doesn't look like there is an issue based on the value.) 

You certainly appear to be below the filing threshold for Form 8938 as well. 

For FBAR, it only takes a balance over $10,000 for a single day in the year to trigger that requirement to file, so you're correct there as well. 

The sale of the home is reported in the investments section of TurboTax as sale of a second home unless your wife lived in it for at least 24 months.  Then it is treated as the sale of a main residence as long as other qualifications are met.

You will report only your wife's share of the proceeds.  For the cost ("basis"), an appraisal is of course ideal but it's not always possible (it's not even something that can be obtained in all countries).

In her case, your best effort to determine the basis will work.  Don't forget to include her share of any improvements made since 2012 to the property as well.  You will reduce the total basis by half for your wife's share just like the proceeds and should remember to include selling costs and the like as well as an adjustment to one number or the other.  

In some cases losses on these types of sales are deductible but since your wife did live in the home for a period of time after inheriting it, her loss (if any) would not be deductible.  If a loss results from the reporting of basis and proceeds, adjust the basis to get a -0- there.  

Let us know if you continue to have questions, but it sounds like you're on the right path!