Tax question - sale of foreign property


B

BE

My wife is a Russian citizen (and a resident alien of the
US) and will inherit property in St. Petersburg from her
parents, eventually. They are both in their late 70's.

Does the IRS have any right to tax the proceeds of the sale
of this property? If not, does the IRS or US Customs have
any right to a portion of the cash proceeds from the sale of
this property, done in a legitimate way?

If the answer to the above questions is "NO", is it only
because my wife is not yet a US citizen? Would her
citizenship application be better delayed until such a
transaction is completed?

Thanks,
Bee
 
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P

Phil Marti

BE said:
My wife is a Russian citizen (and a resident alien of the
US) and will inherit property in St. Petersburg from her
parents, eventually. They are both in their late 70's.

Does the IRS have any right to tax the proceeds of the sale
of this property?
A resident alien is taxed the same as a US citizen, on
worldwide income. Inheritances are not taxable income.

Inherited property comes with a stepped-up basis of fair
market value on the date of death. If the property is sold
shortly after she inherits it, there will be no income tax
consequence, assuming that it's sold for FMV. If it's sold
for a gain (over her stepped-up basis), it's a long-term
capital gain.
 
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L

L K Williams

E said:
My wife is a Russian citizen (and a resident alien of the
US) and will inherit property in St. Petersburg from her
parents, eventually. They are both in their late 70's.

Does the IRS have any right to tax the proceeds of the sale
of this property? If not, does the IRS or US Customs have
any right to a portion of the cash proceeds from the sale of
this property, done in a legitimate way?

If the answer to the above questions is "NO", is it only
because my wife is not yet a US citizen? Would her
citizenship application be better delayed until such a
transaction is completed?
If your wife is either a US citizen or a greencard holder,
she is subject to US taxes. If you elect to treat her as
subject to US taxes so you can file a joint return, her
worldwide income will be taxed.

So, the answer is that any gain on Russian assets will be
subject to US taxes if she is otherwise subject.

However, that may not be a big problem. Even if the
property is not in the US, her basis when she inherits it
from her parents will be the fair maket value on the date of
death. If she sells within a few months, she probably will
not realize a taxable gain -- thus no tax. >
 
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B

BE

Phil Marti said:
A resident alien is taxed the same as a US citizen, on
worldwide income. Inheritances are not taxable income.

Inherited property comes with a stepped-up basis of fair
market value on the date of death. If the property is sold
shortly after she inherits it, there will be no income tax
consequence, assuming that it's sold for FMV. If it's sold
for a gain (over her stepped-up basis), it's a long-term
capital gain.
There's no way to determine something like a "capital gain"
in this case because the property was privatized after the
Soviet Union collapsed. Even then "values" were ridiculously
low by US standards. Even NOW there's no real known value,
at least not accurately reflected by what her pensioner
parents pay in taxes.

And anyway, how is the IRS going to monitor sales
documentation of something sold in Russia?

What about the other part of my initial question - the
capital from the sale coming in through US Customs - let's
say the amount is $500,000 - can that money come in duty-
and tax- free?

Thanks,
Bee
 
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H

Han

A resident alien is taxed the same as a US citizen, on
worldwide income. Inheritances are not taxable income.

Inherited property comes with a stepped-up basis of fair
market value on the date of death. If the property is sold
shortly after she inherits it, there will be no income tax
consequence, assuming that it's sold for FMV. If it's sold
for a gain (over her stepped-up basis), it's a long-term
capital gain.
OK, now *my* question: A US citizen inherits Euros in a
Dutch account. This increased in value vs the dollar since
the date of death. Now these euros are used to send dollars
as a gift to someone in the US or elsewhere. Is there a
capital gain?
 
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P

Phil Marti

A resident alien is taxed the same as a US citizen, on
There's no way to determine something like a "capital gain"
in this case because the property was privatized after the
Soviet Union collapsed. Even then "values" were ridiculously
low by US standards. Even NOW there's no real known value,
at least not accurately reflected by what her pensioner
parents pay in taxes.
Let's try again. If she inherits the property the basis is
what it's worth when she inherits it. If she sells it
shortly thereafter, that's the FMV, it equals the basis, and
there's no taxable gain.
And anyway, how is the IRS going to monitor sales
documentation of something sold in Russia?
What possible difference could that make? You file accurate
tax returns because it's the law, not because the IRS is
looking over your shoulder 24/7.
What about the other part of my initial question - the
capital from the sale coming in through US Customs - let's
say the amount is $500,000 - can that money come in duty-
and tax- free?
Again, there's no tax due from the recipient on inheritances
(or gifts, for that matter).

I have no idea whether there's an import duty on cash (or
cash equivalents), but I doubt it. Customs, or whatever
they call it nowadays, would be the source of a definite
answer. I think it's buried somewhere in Homeland Security
now. You can get to any government agency through
www.firstgov.gov.

There may be reporting requirements on large amounts of cash
coming in. Your banker could probably tell you.
 
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L K Williams

OK, now *my* question: A US citizen inherits Euros in a
Dutch account. This increased in value vs the dollar since
the date of death. Now these euros are used to send dollars
as a gift to someone in the US or elsewhere. Is there a
capital gain?
Yes! This is a gain on currency and is reported on Schedule
D on the US tax return.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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H

Han

OK, now *my* question: A US citizen inherits Euros in a
Yes! This is a gain on currency and is reported on Schedule
D on the US tax return.
Thank you (I think!).
 
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D

Dick Adams

What about the other part of my initial question - the
capital from the sale coming in through US Customs - let's
say the amount is $500,000 - can that money come in duty-
and tax- free?
Last time I checked there was neither a duty nor an excise
tax on the international transfer of bank funds into the
United States. CASH is a completely different story.
 
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D

David Woods, EA, ChFC, CLU

There's no way to determine something like a "capital gain"
in this case because the property was privatized after the
Soviet Union collapsed. Even then "values" were ridiculously
low by US standards. Even NOW there's no real known value,
at least not accurately reflected by what her pensioner
parents pay in taxes.

And anyway, how is the IRS going to monitor sales
documentation of something sold in Russia?
What difference does it make? To not report the gain is
illegal under US law. What type of response did you EXPECT
to get???
What about the other part of my initial question - the
capital from the sale coming in through US Customs - let's
say the amount is $500,000 - can that money come in duty-
and tax- free?
This is not the proper forum for that. This is a tax forum,
not a customs or immigration forum.
 
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S

Steve Pope

This is not the proper forum for that. This is a tax forum,
not a customs or immigration forum.
Aren't customs a form of tax? I've seen customs questions
asked and answered here before.

Steve
 
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David Woods, EA, ChFC, CLU

Aren't customs a form of tax? I've seen customs questions
asked and answered here before.
You're splitting hairs. He was asking about immigration.
 
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