Hello JA Customer,
There is nothing you can do that will avoid the taxes that will be due on the gain your mother in law has from the sale of this residence, regardless of how the funds are used.
First, she may have the money transferred to your US account if she does not have one of her own. Transferring the money in itself is not what is a taxable event. The taxable event is the sale of the apartment.
If the property is in your mother in law's name, she is the one who will owe taxes on the sale. Assuming she has owned this property for more than one year, the gain would be taxed as a long term capital gain which currently has a maximum tax rate of 15%. Her gain on this sale would be figured by taking the sale price less her basis, less the cost of any selling expenses such as commissions. Her basis in the apartment would be whatever she originally paid for it, plus the cost of any improvement she made while she owned it. So as an example -- if she originally paid $80,000 for the apartment and then spent another $20,000 in improvements, her basis would be $100,000. If she sells the apartment for $150,000, she has a taxable gain of $50,000 at a maximum rate of 15%.
Your mother in law will need to report this transaction on her 2010 tax return. The US will allow her to claim a credit for any foreign taxes she may end up paying to Russia on this same transaction, which could reduce or even eliminate any taxes she owes here in the US.
Once she pays taxes on her gain from this sale, she may give the money to you and your wife as a gift to use in any manner you wish. The only requirement would be that she file Form 709 with the IRS to report the value of the gift.
First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due.
In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.
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