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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I inherited land owned by my father in another country. I live

Resolved Question:

I inherited land owned by my father in another country. I live in California. Do I owe any tax now or if/ when I sell it?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello Customer,

 

You will not owe any type of inheritance tax or any tax at this time, but you would owe taxes when the property is sold if you have a gain from the sale. It will be treated the same as if you had sold property here in this country.

 

When you receive property as an inheritance you are entitled to a stepped up basis on the first $1.3 million in assets. What that means is that your basis in this property is whatever the fair market value was on the day you inherited it. So you will want to keep a record of that value. When you sell the property if you sell it for more than that basis, then you have a gain which is taxable as a long term capital gain. That tax rate is currently capped at 15%.

 

 

Thank you Customer

 

 

Customer: replied 4 years ago.
Thank you, XXXXX XXXXX do not understand "entitled to a stepped up basis on the first 1.3 million in assets.
Expert:  Merlo replied 4 years ago.

Hello again Customer,

 

Basis in property generally means your cost, or what you paid for it. So as an example, if your father had originally paid $50,000 for that home, that would have been his basis. When your father died if the property was then worth $100,000, then you as the beneficiary are entitled to a stepped up basis -- meaning instead of keeping the basis of $50,000 that your father had, your new basis is the fair market value of $100,000.

 

Starting in the tax year 2010, the stepped up basis applies to the first $1.3 million in assets that you inherit from someone. So now when you sell the property, you will not have to use your father's basis of $50,000 to determine your gain. Instead you will use your stepped up basis of $100,000 and this will give you less of a taxable gain to report when you sell the home.

 

 

Thank you Customer

 

 

Customer: replied 4 years ago.
Thank you,

But is there not an inheirtance tax exemtion - no tax if what you inherit is less than 1.5 million? Also, my father died in 2008, I should have included that in my question - sorry!

I promise, this will complete my understanding need for my question. Thank you!
Expert:  Merlo replied 4 years ago.

Hello again Customer,

 

First of all, there is no inheritance tax. Instead the IRS imposes estate taxes, although for the year 2010 even those have been eliminated. Back in 2008 the estate tax exemption was $2 million, but estate taxes only apply to estates of US citizens. So if your father was not a US citizen or if his estate did not exceed $2 million when he died in 2008, then no estate taxes are due.

 

Estate taxes or inheritance taxes are NOT what you would be liable for here. What I am saying is that you owe no tax at all on the value of the property that you inherited. BUT if the value of that property continues to go up, and you later sell it, then you do owe tax on the gain you had in value from the day you inherited it.

 

As a simple example -- say you inherited a home that was worth $100,000. You owe no inheritance tax or estate tax on that home. Now if you keep the home for a few years and it continues to go up in value to say $150,000, now if you sell it for $150,000 you will owe tax on that $50,000 gain. The only thing that is exempt from tax is the value of the home as of the day you inherited it. If the value increases after that time, that does not continue to go untaxed, and you will owe tax on the gain when you sell the home.

 

If this was helpful please press the Accept button.

 

Thank you Customer

 

 

Customer: replied 4 years ago.
I will repeat to make sure I read it correctly -

Since my dad was not a U.S citizen/resident and land holdings are less then 2 million - he does not owe estate taxes. I will only owe capital gain tax if I sell it and a gain is realized with respect to the proper cost basis (i.e. the 2008 2 million level has no bearing on me.)

Thank you!

Expert:  Merlo replied 4 years ago.

Hello again Customer,

 

Yes, your understanding is totally correct.

 

Let me know if you have more questions, otherwise pressing the Accept button will give me credit for helping with this question.

 

Thank you Customer

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Merlo
Merlo
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25+ years tax consulting. Specializing in returns for US citizens living abroad