Tax on Immovable property abroad received by Inheritance

Hello there!

Inherited property is not subject to income tax and does not need to be reported to the IRS at the time of inheritance. Please note that some states have an inheritance tax - so you may need to check your state law.

 

However, if you sell the inherited property you have to calculate the gain on the sale of the property, regardless of the fact that the property is located abroad. You can claim a credit for taxes paid to the foreign jurisdiction to avoid double taxation. Here is a resource that you may find helpful:

https://turbotax.intuit.com/tax-tips/estates/4-ways-to-protect-your-inheritance-from-taxes/L653s0Kyn

 

TurboTax software can handle the calculation of a gain on the sale of inherited property, but you would have to handle the conversion from the foreign currency to US dollars outside the software.

Hello drc845443, 

Thank you very much for your suggestions. The valuation of Fair Market Value at the time of Inheritance was received in foreign currency. For the conversion from foreign currency to USD, is applied to the Capital Gain amount?  

The currency conversion rate used from the year of inheritance, or the date of property sold? and it applied to capital gain?

Is TurboTax software calculating and apply Tax credit paid in foreign country? 

Hello there,

There are three steps to calculate your gain on the sale:

1. You will need to convert the fair market value of the inherited property to US dollars using the rate at the time of death to get the value of the inheritance in US dollars.
2. You will then need to convert the sales proceeds and any related selling expenses to US dollars using the rate on the date of sale. This will give you the net proceeds from the sale in US dollars.
3. Your gain will be calculated by subtracting the fair market value at the time of death (plus the cost of any other improvements you may have made) in US dollars  as determined in step1 from the net sales proceeds in US dollars as determined in step 2.

Turbo Tax will interview will guide you through the process to claim the foreign tax credit. You will need to have the details of the taxes paid, and you will need to convert the amount to US dollars using the rate of exchange on the date of the payment.

Hello again, 

 

The time of Inheritance, the receiver was not US resident nor US citizen. But the time of Sale, the person is US citizen. Maybe I am thinking differently but would like your opinion of conversion of FMV at the time of Inheritance?

The U.S. tax code states – inherited foreign assets receive a stepped-up basis to their fair market value at the time of the decedent’s death. This means the Foreign Property is valued at FMV at the time of death.