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Foreign real estate - tax reporting requirements

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  • Foreign real estate - tax reporting requirements

    For many years, my mother has held some undeveloped, agricultural land in her name, which is located in a European country. In Nov 2017, she transferred the ownership to me. Neither of us live on this land, rent it out, and it is now held solely in my name (not in any type of corporation/parternship/estate etc). There is no bank account associated in the foreign country with this land.

    2 questions:

    1. My understanding is that my newly inherited foreign land does not count as a foreign financial account or an interest in a foreign financial asset, and it's therefore not reportable on my 2017 income taxes? http://www.rosenbergmartin-tax.com/news/i-am-a-u-s-citizen-and-i-own-real-estate-in-a-foreign-country-do-i-have-to-report-the-foreign-real-estate-to-the-u-s-government/

    2. If I choose to sell the land in the future, would that income be taxable? I'm assuming it is, and any taxes paid to the foreign country in which the land is located would qualify as a tax credit here in the US?

  • #2
    I think mom just gave you a CPA bill.

    Comment


    • #3
      In general:

      Foreign real estate is reportable to and taxable by the IRS when the real estate gives rise to income realized.  Income is realized when you derive rental income from the real estate, or sell it for a profit.  If the real estate is owned but does not give rise to income, it is not reportable (e.g., the FBAR or IRS Form 8938) and there is no income to declare.  If you sell the real estate in the future, your gains would be reportable and taxable on your US income tax return, irrespective of whether you paid tax on the gain in the local jurisdiction.  However, if there is a tax treaty between the US and the local jurisdiction, you may be entitled to a deduction on your US return for the taxes you paid to the foreign jurisdiction.

      You mention that you inherited the foreign real estate from your mother.  This inheritance may be reportable on IRS Form 3520.

      None of the above is legal advice and none of the above may apply to your specific situation.  For legal advice on your specific situation, see a qualified tax lawyer.

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      • #4
        Thank you, Asher. How do I report what the gain is when I eventually sell the land? I don't have any documentation showing how much the property is worth. Is it simply the price of the property at time of sale?

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        • #5
          This can get complicated rather quickly.  You need an appraisal to determine what the property was worth back in November 2017.  Your mom gave you the property while she still is alive.  This is a very nice gesture, but you don't get the stepped up basis that you would have gotten if you got the property at time of death.

          There also is the added complication of how the foreign jurisdiction treats and taxes this transaction.

          Craigy's right: Mom gave you a patch of dirt with a side order of accounting and legal fees.

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          • #6




            Thank you, Asher. How do I report what the gain is when I eventually sell the land? I don’t have any documentation showing how much the property is worth. Is it simply the price of the property at time of sale?
            Click to expand...


            The gain when you eventually sell is the sales price minus your basis.  Your basis may be stepped up (better for you) or carried over as your mom's basis, depending on the facts, as Hank notes above.  Indicia of basis value can include: appraisals, tax value, price when your mom bought it (if carry over basis).  Again, this is general advice, not specific legal advice to your specific situation.

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            • #7
              Gotcha. I figured this would get complicated. Time to get it appraised!

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