When the time comes (hopefully many years from now), I will be inheriting a property which is currently owned by my father. My question is what tax implications will there be? Is there a "smart" way to go about handling this? Maybe set up a trust?
Here are some additional details: 1) I will be splitting the inherited property with 3 other individuals. 2) I currently reside in USA and my only assets/sources of income are from the states. This will obviously change with the inherited property. 3) Assuming all inheriting the property can come to an agreement, we will likely sell the property. 4) Is there an a page with resources on international assets I can check? The IRS website didn't have anything specific to my situation (at least that I could find)
Also, if I were to leave the cash from the sale of the property overseas and not bring it to the states nor convert the currency to USD, would I still have to pay taxes? Or do I owe taxes as soon as I inherit it regardless of if I bring the cash to the states or not?
I know I know - I should talk to an international accountant or something of the sort and I will when the time comes. Just trying to get a general idea in advance.
Thank you all for your responses.
Second question: From what I'm reading there are no taxes on the sale of the property as long as that cash doesn't generate income since my father is not a US citizen. Now if I were to invest that cash into a foreign property, and then sell that property down the road for more than I paid for it, I assume there will be capital gains tax the profit correct?
ahmadcpa said: If you inherit more than $100,000, you have to report it. Check instructions for form 3520 Interesting. Will there be a tax burden on the amount over $100k? Is there an international accountant I can talk to? Who do you think the best professional is for me to discuss this with?
the general rule of thumb is, if you make over 100k a year overseas, you need to submit it during tax season. The US government would eventually try to tax you for everything, but for now, staying under 100k a year is the safest approach. If over 100k, you would need to declare the specifics in your tax returns. You can try to talk to an accountant, but there's really nothing to discuss. 100k/year is the threshold. If you intend to keep the property, then it is a different issue; you may need to get an attorney who understands international law involved, which does not seem to be the case based on your post.
There shouldn't be any domestic taxes due to the IRS regarding the inheritance but you will probably need to begin filing an FBAR. There may be foreign inheritance/estate tax implications depending on the country.
bigbard27 said: There shouldn't be any domestic taxes due to the IRS regarding the inheritance but you will probably need to begin filing an FBAR. There may be foreign inheritance/estate tax implications depending on the country.
You don't file an FBAR on property unless the propery will get sold per OP that's the plan an in cash / account in foreign bank (aka over $10,000 accounts are reportable, not taxes on FBAR side just reporting return).
gifts from foreign source is not income and is not subject to federal tax, but if you are a beneficiary receiving income from a trust it is taxable. Why is your father setting up a trust when he could divide the property in his will?
Income from a trust as rpi said is taxable (it's income). However, since your father is not a US citizen or (I assume) permanent resident/greencard holder, then there is no US estate tax.
Assuming the above, it doesn't matter if you keep the property or sell it for cash and keep the cash. However, for overseas bank accounts with over $10k (unless it changed) you're required to file reports. Interest or income received from the cash or property (should you choose not to sell it)? US Income tax is payable by you on your share of any income.
Should your father become a permanent resident, of course, the situation changes and there is an estate tax if the value over the estate is above the threshold at the time.
rpi1967 said: gifts from foreign source is not income and is not subject to federal tax, but if you are a beneficiary receiving income from a trust it is taxable. Why is your father setting up a trust when he could divide the property in his will? He hasn't set up a trust, I was just throwing out ideas and wondering if that would perhaps be beneficial but doesn't sound like it.
Consult a tax adviser, but basics are: + Upon inheritance: no US income or estate tax. + If this is income producing property, e.g., rental property: income is subject to US tax; US tax may be offset by foreign taxes paid on same income (foreign tax credit). + If property is subsequently sold: gain is subject to US tax, may be offset by FTC; remember that your basis is FMV at time of inheritance, i.e., taxable only on post-inheritance appreciation.
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