Large Gifts Received From Foreign Persons

[FairFrankTax]

When money is received from Jamaica from a relative as proceeds from deceased parents' real estate rental and investment brokerage closed account totaling $30,000 after conversion from $JA, what is the obligation for reporting and paying taxes? I found RP24 6039F page 20  but uncertain if it applies. https://www.irs.gov/pub/irs-drop/rp-24-40.pdf 

[MaryK4]

Because it is inherited property, it would receive the same tax treatment as if it were inherited property from the U.S. so you have to look at how the transaction occurred before you received it.  In general, you would not have to pay income tax on inherited property, but there may be reporting requirements and income tax due depending on how the property was distributed.

If you received the actual rental property (or a share) as the bequest and later sold it, you would report as a capital gain.  If you just received the proceeds as a bequest, you would not have to pay income tax on it.  See How Can I Protect My Inheritance From Taxes?

The situation becomes a bit more complicated because it crossed the border- you would have to be mindful of foreign asset reporting- see FBAR Compliance: Reporting Your Foreign Bank Accounts.  Depending on the situation on the disposal, you may also have foreign tax credits (but once again, this is dependent on if the taxes were paid before distribution.)

If you have additional questions, please feel free to add to this question to keep the details consolidated.  

[FairFrankTax]

Thank you so much for the careful answer. The property that was inherited is a joint tenancy with other 8 siblings. The property is being rented, and as the property has excess proceeds after expenses, the money is divided among the siblings. It receives money in Jamaican dollars, which is converted and sent to the siblings. Does the IRS RP24 page 20 https://www.irs.gov/pub/irs-drop/rp-24-40.pdf apply?

Is there a threshold under which no reporting is required, notwithstanding the FBAR which I need to read 😭?

[DianeW777]

No, there is no threshold. The IRS RP24, page 20 is referring to the estate tax and not your individual income tax which is completely separate. As you indicated, you received the net profit from the rental property and that is taxable income on your tax return. This is rental income.

As far as the investment brokerage account that was closed, it depends on if an estate return was completed in Jamaica. If necessary, you should seek an estate professional to assist in determining if Jamaica requires this type of tax return.

If the proceeds were directly received by you, and you were not a joint owner on the investment account at the time of death of your parent, then this is an inheritance for tax purposes. The value of the investment account at the time of death is your cost basis. If any investments were sold, then a report of the sale price and cost would be required to be reported by each beneficiary for their share.

• Assuming this qualifies as an inheritance the cost and sales price would be relatively close creating little to no gain or possibly a small loss if there were selling expenses. If this was split between 8 siblings you would divide the total by 8 and each sibling would report their own share.

As indicated by our tax expert @MaryK4, you should also check the FBAR Compliance.

Please provide additional details for further information and we will help.

@FairFrankTax 

[FairFrankTax]

Thank you so much for the clarification on RP24. Please be patient with me. The text had gifts on page 20 Item .48 and reads like this. I did not see estate tax on that line.

.48 Notice of Large Gifts Received from Foreign Persons. For taxable years beginning in
2025, § 6039F authorizes the Secretary of the Treasury or her delegate to require recipients
of gifts from certain foreign persons to report these gifts if the aggregate value of gifts
received in the taxable year exceeds $20,116.

Does the inheritance, the money balance from the closed account in any amount need to be reported for 2025? I do not believe the siblings were named beneficiaries on the closed investment account. Does that mean the foreign bank reporting would be unnecessary since they were not named on the account as joint owners or beneficiaries?

I understand that the rental income in any amount need to be reported, correct?

Thank you so much.

[DianeW777]

It depends as to whether you need to file with FBAR. If the account was ever in your name then you would be required to file FinCEN Form 114a. If the account was closed and the money issue to you directly by check or deposit, then you many not need to file one.

Report of Foreign Bank and Financial Accounts (FBAR): The following are the most important that may affect you--

1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

As far as the siblings they should also refer to the link to determine if any filing is necessary for them since they only received the rental income.

@FairFrankTax