Property that was owned prior immigrating to USA

[Kostas_matak]

Hello everyone,

I have been owned a property in a foreign country before I immigrated to USA. Do I have to report the property or the value of the property on any forms? if so, what forms do I have to use?

I read online that if I sell this house in the future I will have to pay capital gains. The cost basis of the property the article was saying that it is the actual value of the house the date that I moved to USA.  You pay capital gains from the difference of the price that you sold the house minus the cost basis.

Please help

Thanks

[pk]

@Kostas_matak , just generally

(1) the gain when you sell/ dispose off  a asset ( in your case a residential property ) is based on the  difference  between  the basis  ( i.e. what you spent in acquiring the asset ) and the sales proceeds ( sales price LESS any sales related expenses  such as commission, sales preparation expenses,  local transfer tax etc. etc. ).

(2) This gain is taxed at rates depending on whether the asset was owned by you for more than one year ( Long Term ) or less ( short-term).  Under US tax laws , the long term gains are taxed at a preferential rate ( Capital gains tax  rate ) while short-term gains are taxed  as ordinary  income.

(3) The fact that the  property ( asset ) is situated in foreign country  does not change anything. 

(4)  Your basis in the property  ( expressed in US dollars at the  time of the action / event ) is your purchase  price  ( plus any commission, lawyer's fees , transfer tax etc. ) + cost of any improvements

Please note that for more specific answers , we need  to know your immigration status, your country of citizenship, when did you arrive/admitted to US, whether you are single or married  and if so your spouse's immigration status, which state you live in etc.

Is there more I can do for you?

[Opus 17]

If you are a US citizen, permanent resident (green card holder) or resident alien (living in the US and pass the substantial presence test), you are required to report and pay income tax on your worldwide income following US tax laws.  If you also pay foreign income tax on the same income, you may qualify for a deduction or credit on your US tax return for those taxes. 

Under US tax rules, you are not required to disclose ownership of assets, except that you must disclose if you own or control foreign financial assets like bank accounts.  (This is not a taxable situation, but you must disclose ownership of foreign bank accounts with assets more than US$10,000 or equivalent.)

Your capital gain is the difference between the selling price and your basis.  Certain adjustments are allowed to both the selling price and the basis. For property you purchased, your basis is the original purchase price.  Basis may be adjusted upwards by the costs of permanent improvements such as a new roof.  Basis may also be adjusted downward if you use the property in business and claim or are entitled to claim depreciation.  You can reduce the selling price by subtracting certain costs of selling, such as real estate commission and certain taxes and fees you might pay on the transaction.  For property received as a gift, the basis is more complicated to figure out.  Property that is inherited usually has a basis equal to the fair market value on the date the previous owner died.  You can learn more about basis here.

https://www.irs.gov/taxtopics/tc703

Basis has nothing to do with the value when you immigrated.  Basis is also not adjusted for inflation (even though some other countries allow for an inflation adjustment.  If the property is in one of those countries, you would calculate your capital gains and pay tax in the US using US rules, and you would calculate your gain and pay any local tax using local rules.)

[Kostas_matak]

Thank you very for your response

[Kostas_matak]

Hello and thank you for your response.

Actually I did not buy the house so I have no idea about the basis cost. My father gifted to me. My other question is do I have to report anywhere that I have a house in a foreign country?

Thanks

[Opus 17]

@Kostas_matak 

There is no requirement to document property that you own. You’re only required to report income, which can include selling property for a profit.

in the case of property that you received as a gift, your cost basis is the same as the cost basis of the original giver. That means the price that your father paid for the property, plus the price for any permanent improvements that he made. If you don’t have this information, you may be able to get it from whatever town or county or provincial office keeps records of real estate transactions, that might have a record of when your father purchased the property.

if you sell the property, you are going to calculate capital gains based on the cost basis, the selling price, and other adjustments. This is recorded on form 8949 and schedule D.  The IRS does not have to award any cost basis that you can’t prove with reliable records. If you guess or estimate the cost basis and are selected for audit, and can’t prove the basis that you claim, the IRS could assign a zero basis, and you would pay capital gains tax on the entire sales proceeds.

Here is a link to more information.  

https://www.irs.gov/taxtopics/tc409

[Kostas_matak]

Thank you very much for your help. My father bought the house in 1990. I assume due to the inflation, you cannot compare the purchase price from 33 years ago to today. Do you consider the inflation to calculate the capital gains?

[Opus 17]

@Kostas_matak 

as I mentioned above, some countries may allow an inflation adjustment to the cost basis, but US tax law does not. If you are required to pay capital gains tax in the country where the  property is located, you would follow that country’s tax laws in determining what tax was owed.  Under US law, your cost basis is the original purchase price converted to US dollars using the conversion rate in place on the day of the purchase, or the average conversion rate for the entire year (which I believe is published on the US Treasury web site).  There is no adjustment to the cost basis for subsequent inflation.

[Kostas_matak]

Thank you very much for the clarification.

I appreciate your having taken time

[pk]

@Kostas_matak , having gone through the above and generally agreeing with my colleague @Opus 17 , I am still left with some uncertainty ---- (a)  when you say "gifted" , does it mean that the  property was  transferred to you by your father while he is/was still alive  or was the property transferred to you after his death ( if he has already passed) ?;   (b) did the sale of the property  occur subsequent to your "immigrating" to the USA   ( in 2022) ?  (c)   Was the property rented out at any time from the time the property was in your name till the day the sale of the property was completed / consummated ?; (d)  Are you a green card holder or on work visa  and if the latter then when did you enter this country ?

Answers to these questions may impact your  basis in the property for US tax purposes.

Which is the property in ?

[Kostas_matak]

Hello, The property was transferred from my father to me a lot of years before I immigrated to USA. Also, I have not rented the house. I stay there when visit my parents.  I want to note that I have not sale the property. I am just asking in case of I want to sell it in the future.

Thanks