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hp100
Level 3

form 3520

I inherited a small house In the foreign country from father more than 30 years ago,  where mother continued to lived last year and sold the property.  When the house was about $8,000 for taxation (which was very low compare to the real market value) 30+ years ago and paid the capital gain tax in the foreign country.  I came back to USA and realized the foreign accountant considered the base price of house as $140,000 using complicated methods, and calculated the capital gain tax.

If use the $140,000 as a base price,  it worries me not filed form 3520. If I use the $8,000 as a base price, I have a tax burden.  I talked an appraisal, he does not have any data that long time ago...

1 Best answer

Accepted Solutions
Opus 17
Level 15

form 3520

You must follow US tax law when reporting the sale and gain, regardless of how the gain might be reported in the other country.  It sounds like your home country allows you to adjust the cost basis for inflation.  The US does not.

 

Your cost basis is the fair market value on the date your father died, translated to US dollars at the exchange rate for that day.  (Likewise your selling price is the US dollar value at the exchange rate for the day you sold.) You can include adjustments if you paid for permanent improvements, but you can't take an adjustment for inflation or market appreciation.  If your mother co-owned the property, your US cost basis may be very different.  I can't tell if she was a co-owner or if she simply handled the sale for you.

 

If this was a rental property (what were you doing with it these last 30 years) you have to decrease the cost basis by depreciation you claimed or could have claimed, over a time frame of 27.5 years, so you have no cost basis now regardless of what it was.

 

You will file a schedule D with your tax return to report and pay capital gains tax on the sale.  It sounds like your cost basis is $8,000 and your selling price close to $140,000 so you do indeed owe some capital gains tax.  You can assign any cost basis you reasonably believe to be true, but in the unlikely event you are audited, the IRS does not have to award any basis you can't prove.  

 

If any form 3520 was needed, it would have been 30 years ago when you inherited the property.  You don't owe the form now because you are selling property you own and any money coming to the US is your money, it is not a bequest or gift in 2021.  And even if the property value in the 1990s was over the limit to file a form 3520, the statute of limitations is long past.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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2 Replies
DaveF1006
Employee Tax Expert

form 3520

It depends. 

  1. Were  you an US citizen at the time of the inheritance? 
  2. For inherited property, the basis is the property's fair market value on the decedent's death date.  Is this what your foreign tax accountant calculated? The $8000 may not have been a valid assessment at the time of your father's death. You would need to research historical house prices in that era or go with your accountants information.
  3. Requirements for form 3520 came into existence in 2007.  With this said, I would strongly suggest to  consult with a tax attorney to find out if there were additional filing requirements after the fact. An hour's worth of consultation fees will save you a lifetime of misery.
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Opus 17
Level 15

form 3520

You must follow US tax law when reporting the sale and gain, regardless of how the gain might be reported in the other country.  It sounds like your home country allows you to adjust the cost basis for inflation.  The US does not.

 

Your cost basis is the fair market value on the date your father died, translated to US dollars at the exchange rate for that day.  (Likewise your selling price is the US dollar value at the exchange rate for the day you sold.) You can include adjustments if you paid for permanent improvements, but you can't take an adjustment for inflation or market appreciation.  If your mother co-owned the property, your US cost basis may be very different.  I can't tell if she was a co-owner or if she simply handled the sale for you.

 

If this was a rental property (what were you doing with it these last 30 years) you have to decrease the cost basis by depreciation you claimed or could have claimed, over a time frame of 27.5 years, so you have no cost basis now regardless of what it was.

 

You will file a schedule D with your tax return to report and pay capital gains tax on the sale.  It sounds like your cost basis is $8,000 and your selling price close to $140,000 so you do indeed owe some capital gains tax.  You can assign any cost basis you reasonably believe to be true, but in the unlikely event you are audited, the IRS does not have to award any basis you can't prove.  

 

If any form 3520 was needed, it would have been 30 years ago when you inherited the property.  You don't owe the form now because you are selling property you own and any money coming to the US is your money, it is not a bequest or gift in 2021.  And even if the property value in the 1990s was over the limit to file a form 3520, the statute of limitations is long past.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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