Inherited property sold in Canada, do I need to report to IRS?

[wudxxx]

When my mom passed away in Canada, based on a Will, the condo title transferred to me to responsible sales and distributed the proceed to my sibling. The Condo sold in 2024, do I need to report in 1040?

[DianeW777]

Yes. As a US citizen you are required to report all worldwide income on your tax return. If the condo was sold relatively closely after your mother passed away, then you might have a cost basis of the fair market value (FMV) on the date of death. It means there would be virtually no gain or loss on the sale of inherited property. This assumes your name was not on the property before death.

The IRS would want it reported even if you have no gain, to show the cost basis.

You would be allowed to claim a foreign tax credit or deduction if there was income tax paid to Canada and you were taxed on the same income on your individual US income tax return. It may not be relevant if you have no gain or you did not pay any tax in Canada.

[wudxxx]

The accountant in Canada file a tax return to Revenue Canada and I am a non Canada resident. Capital gains were paid to Canada, any sales proceed paid to my siblings as inheritance. Do I file that in the 1040 as a Foreign tax credit or there is other form that I should use to file with the IRS?

Thanks

Daniel

[DianeW777]

It depends. If the estate filed a tax return in Canada for the sale and you only received a distribution from the estate as a beneficiary, then 'corpus' would not be taxed. However, it sounds like you are saying you inherited the property and then sold it. If the latter is the case you will file the sale on your tax return (each beneficiary for their share) and use the foreign tax credit to cancel out the tax for the US if there is any tax on the sale at all.

• Example: Fair Market Value on the date of death: $100,000 minus the selling price of $100,000 = zero gain or loss. 
  • In this example there would be no need for the foreign tax credit even though you did pay tax in Canada.

As I indicated earlier, it's not likely there will be any capital gains because the selling price and the inherited value will be very close and could even be a loss when considering selling expenses.