Form 3520 after Foreign Inheritance increased in value over years and 2022 sale

[rl50]

Hello,

Father inherited half of a foreign property 20 years ago. Valued less than 100K at the time.

Sold his share in 2022 for slightly more than 100K.

Should Form 3520 be filed for tax year 2022?

Seems it should not have been filed for any previous years as value at time of inheritance was

under 100K. How do people deal with an inheritance 'increasing' in value regarding form 3520

over years?

Thank you.

[MaryK4 · Accepted solution]

Your father would have only been responsible to report the bequest in the year he received it, that is when the property transferred- for 2022 it is simply a sale so no 3520 is needed.

U.S. persons (and executors of estates of U.S. decedents) file Form 3520 to report:

• Certain transactions with foreign trusts.
• Ownership of foreign trusts under the rules of sections Internal Revenue Code 671 through 679.
• Receipt of certain large gifts or bequests from certain foreign persons.

[rl50]

MaryK4, thank you very much for the quick answer.

I was confused by IRS docs(and web info) seeing some instances of reporting every year.

I have another question related to the same sale but, perhaps, that should be a separate post(do tell

if so).

The property inherited by my father and his brother was torn down and rebuilt into a few apartments.

My father(and his brother) did not actually pay for this but the builder was given some equity(# of apartments) as payment.

The value of my father's share increased(even though equity of entire property was lower, new apartment worth

more than half of original inherited property) and so

this seems to be a capital improvement.

How should this be handled when reporting the cost basis?

Use original value only or if adding a capital improvement how to value that? FMV difference at the time(years

after inheritance) from original value? Or FMV of performing the rebuild? Or ...

Again, thank you for answering my original question.

[MaryK4]

To maximize tax savings, you may want to consult with an expert in the country where the apartment was located (because they may have different rules).  The best setup would be as a partnership- your father and his brother contributed the land (so that basis will be the value when they originally inherited it), the builder contributed "sweat equity" so the basis of the property would be the fair market value of the property (land and building) when it was placed into service.  They will use that number and any other adjustments to basis and subtract it from the amount they received from the sale then divide it as they agreed upon.  @rl50 

[rl50]

@MaryK4 

The tax concern is only for US and it will be a simple capital gains calculation on inheritance for

an individual.

Original building was torn down, new apartments constructed, builder sold his allotment after completion

which was > 10 years ago,

my father sold his apartment in 2022 and his brother still owns his own.

Seems cost basis will be FMV at time of inheritance plus a capital improvement. Should the capital

improvement (which was paid for in sweat equity as you stated) be the difference in FMV at the time the improvement

was completed and the original FMV at time of inheritance?

In that case, the final cost basis would, essentially, be the FMV of the apartment at the time of construction.

Or some other method to value the improvement that I am not understanding?

This is the unknown as the sale proceeds and deductions should be straightforward since the apartment

was left vacant at all times.

Do you do tax prep through the portal and is there any way to request you if they prepare and file through TurboTax? Besides this it is a straightforward return.

Thanks again.