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My non US father did a life estate in Ialy where I am the remainder and he is the life tenant. I am a US resident. When he passes does the property step up in basis. It has been argued before that it does because of IRC 1014 and 2036 but it has also been argued that it does not because of IRC 2031. Also he has another property also in a foreign counrty that he did no life estate and that I will inherit after his passing.Does that get stepped up ? The point is he is a non US resident and the property is not in the US he does not have any US estate.
Thank you for your quesstion
I am researching it now
It may take a few minutes
I apologize for the time here........but there are many places I need to look at since, as even you pointed out, some of the information is contradictory to others
I'm heading over to look at the US/Italy treaty now
tell me about it........thank you I need a good answer
BTW , my father and I are both German citizens only that I am also long term US resident.the life estate property is in Italy the other property is in Germany
Thank you for that additional information (I think.........lol)
You will need to file the Form 3520 when you receive the property
I was going to ask you that ...
Do you have any other questions for me today?
Do you understand everything I told you so far?
I did not see anything on my screen ....where did you write ?
I asked if you had any other questions for me today
I did not get any answer
Hold on....I'm going to change the format
I got disconected from chatroom with no answer !!!!!
Do I get answer from you ????
ok...........Please hold on....I'll get you your answer, ok?sometimes the chat rooms have some problems, which is why I changed the format.Specifically what question are you looking for an answer to? I assume that you got my answers in the chat room up until the very end when I changed formats
No I did not see any of your answer regarding life estate and step up basis ect...
can you please repost it here
I got disconnected from the chat room when you did that, please post it here .. I am still waiting
Hello are you still there?
What is your conclusion do the properties get step up basis ?
Ok , I am waiting , thank you
Why can`t you just in simple words explain my question ?
First it is the format of the chat room ...than your computer is slow .....and it is storming ?????
I would really like a simple answer to the 2 scenarios I gave you.
Why can you not give me a straight answer ?
I am here ......
(Remember, the rules are different for determining the basis of property received as a lifetime gift).
How can I remember when you have not answered that yet ?
Property acquired from the decedent
You still have not answered my question .
Does the life estate property upon death of the life tenant get a step up
in basis when the decendent is a NON-US person and the property is
not in the US ?
I had a very detailed to the point question.
You did not provide a qualified answer instead you made me wait
for long periods with all sorts of excuses.
Thank you for opting out
Another expert here.
Since it has already been answered that the remainderman of life estate does get basis step up I will only address the issue of inheritance from a nonresident alien.
Foreign real property that is inherited from a nonresident alien by a United States citizen or resident alien will receive a step-up in basis under sections 1014(a)(1) and 1014(b)(1) of the Code.
This is clearly stated (although in tax jargon) in Rev. Rul. 84-139
For an article explaining why the requirement of section 1014(b)(9) that property be includible in the value of a decedent’s gross estate does not apply (and section 2031 is not applicable) you can see the article at http://hodgen.com/why-nonresident-decedents-get-step-up-basis-at-death/
Please let me know if you need clarification. Thank you.
Thank you so much for your help I really appreciate it.
I still need help with clarification on the life estate step up
because I have also been told that there is no step up with life estate of a Non Us resident with Non Us property.
Here is what I was told:
I do not believe you will receive a stepped-up basis at death. A person receives stepped-up basis to date of death value for property acquired by “bequest, devise, or inheritance, or by the decedent's estate from the decedent” (IRC 1014(b)(1)). Here, you received the property by gift during his parents’ lifetime; it is not a bequest, devise, or inheritance.
A person can also receive a stepped-up basis to date of death value for property pursuant to IRC 1014(b)(9), which provides:
In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent's gross estate under chapter 11 of subtitle B . . . .
If his parents were US citizens or residents, or if the property were in the US, the property would have be included in his parents’ estates under IRC 2036 at death because of their retained interest in the property. However, because the property is not subject to US estate tax, it is not “required to be included in determining the value of the decedent’s gross estate under chapter 11 of subtitle B.” So IRC 1014(b)(9) does not apply.
I’ve done some initial research in the treatises to confirm my result, and I have found little on point addressing this particular fact pattern. It is possible that there are IRS decisions that construe property received through a life estate deed (the US analogy of what Benjamin received in Italy) as having been received by bequest, devise, or inheritance, but I am not optimistic.
IRC 1014 does not apply and IRC 2036 does not apply
because of IRC 2103
Here is the exact situation again.
My father a Non Us resident / Non Us citizen makes a life estate deed
to his property where I his US resident son am the remainderman
and he retains "usufruct" / life estate
The property is outside the US.
I reported the remainder interest % of FMV at time of deed on form 3520.
What happens next when my now very old father passes away and I
should decide to sell the property some time in the future?
My plan is to file another 3520 at time of death reporting full FMV
of the property at that time of death and use that FMV as basis for future
capital gains assessment.
Is there anything wrong going forward like this ?
I need to know what I should .
What would you do in my situation.
You wrote:"Here is what I was told:
I do not believe you will receive a stepped-up basis at death. A person receives stepped-up basis to date of death value for property acquired by "bequest, devise, or inheritance, or by the decedent's estate from the decedent" (IRC 1014(b)(1)). Here, you received the property by gift during his parents' lifetime; it is not a bequest, devise, or inheritance.
If his parents were US citizens or residents, or if the property were in the US, the property would have be included in his parents' estates under IRC 2036 at death because of their retained interest in the property. However, because the property is not subject to US estate tax, it is not "required to be included in determining the value of the decedent's gross estate under chapter 11 of subtitle B." So IRC 1014(b)(9) does not apply"
In the article linked in my prior answer it says:
"Section 1.1014-2 (b)(2) of the Income Tax Regulations provides that section 1014(b)(9) property does not include property that is not includible in the value of a decedent's gross estate, such as property not situated in the United States acquired from a nonresident who is not a citizen of the United States.
In this case, B inherited the real property from D, and such property is within the description of property acquired from a decedent, under section 1014(b)(1) of the Code. Therefore, B will be entitled to a stepped-up basis under section 1014(a). Under section 1014(b)(9)(c), section 1014(b)(9) does not apply to property described in section 1014(b)(1); hence, the requirement of section 1014(b)(9) that property be includible in the value of a decedent's gross estate does not apply here."
Restating, a nonresident United States citizen or resident does get a step up in basis regardless if this type of property is includible in the estate of the decedent. Section 1014(b)(9)(c) specifies that 1014(b)(9) does not apply to this type of property. That is, the inclusion in the estate is not required fro the step up to be allowed via 1014(a).
The Revenue ruling directly addresses that there is step up in basis for the nonresident alien and the article gives the details of how section 1014 works to not require inclusion in the estate.
Hope this clarifies for you the stated law that the step up is allowed.
If you need more discussion of that matter please let me know.
For your other questions on filing of form 3520 and later tax consequences please start a new discussion (following site policy).
Wow my hats off to you !
I have to admit this is stuff is not my strength and I will have to spend some time to go thru your answer to really understand.
In a nutshell does your responds mean the Non Us situated property gets a step up in basis once the Non US citizen/resident passes and the US resident remainderman owns it outright ?
In advance a huge THANK YOU...
"In a nutshell does your responds mean the Non Us situated property gets a step up in basis once the Non US citizen/resident passes and the US resident remainderman owns it outright ?"
Yes, foreign real property that is inherited by a United States citizen/resident from a nonresident alien will receive a step-up in basis.
You are quite welcome.
If you wish for me to assist with other questions you can reference me in the title of the new question or ask at http://www.justanswer.com/finance/expert-gordosea/
(Of course, I may not personally be available at all times and others will later have a chance to answer in that case.)
Sorry I meant to say foreign life estate.
Does what you posted apply to foreign life estate deed where the
Non Us life tenant passed away and the US resident remainderman
owns the Non US situated property outright.
Does this scenario get a step up when Non US life tenant passes
Again sorry but the way you worded it it applies to just regular
inheritence not nessecarily to a life estate set up and that
is really what I need to be clear about.
Thank you again soooo much , please clarify.
As mentioned in my initial response, it had seemed that you already knew that a remainderman does get a step up in basis on the full value of the property.
Whether or not the person was a remainderman does not change that foreign real estate gets a step up in basis when inherited by a US citizen/resident.
A remainderman gets step up in basis.An inheritance of foreign real estate by a citizen/resident gets a step up in basis.
A remainderman that inherits foreign real estate gets a step up in basis.
Hope this clarifies for you.
Ok, here is the last thing my attorney wrote me:
Actually, the fact that your father is not a US person is likely determinative to this question. IRC 1014(b)(9) gives the step-up in basis only if the property must be included in the decedent’s estate for US estate tax purposes. The Internal Revenue Code has two separate chapters that deal with when property is included in the gross estate. One chapter addresses residents and citizens, and the other addresses nonresidents who are noncitizens. In that chapter is IRC 2103 – which states that “the value of the gross estate of every decedent nonresident not a citizen of the United Stated shall be that part of his gross estate (Determined as provided in section 2031) which at the time of his death is situated in the United States.”
Accordingly, because your father is a nonresident noncitizen, and because the property is not situated in the US, the property will not be included in his gross estate for US tax purposes, and therefore it will not meet the requirement of IRC 1014(b)(9).
How do you espond to that?
Again thank you sooo much for your time , I really need to know.
I did start a new thread regarding how to apropriately file form 3520 with life estate
please respond ...thank you
"IRC 1014(b)(9) gives the step-up in basis only if the property must be included in the decedent's estate for US estate tax purposes."
IRC 1014(b)(9) is not limiting in your situation since such property is within the description of property acquired from a decedent, under section 1014(b)(1) of the Code.
"9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent's gross estate under chapter 11 of subtitle B or under the Internal Revenue Code of 1939. In such case, if the property is acquired before the death of the decedent, the basis shall be the amount determined under subsection (a) reduced by the amount allowed to the taxpayer as deductions in computing taxable income under this subtitle or prior income tax laws for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent. Such basis shall be applicable to the property commencing on the death of the decedent.
This paragraph shall not apply to-
(A) annuities described in section 72;
(B) property to which paragraph (5) would apply if the property had been acquired by bequest; and
(C) property described in any other paragraph of this subsection. "
Within IRC 1014(b)(9) items A,B and C give the items to which the paragraph at IRC 1014(b)(9) does not apply. That is, there is no requirement for value of the property to be included in the estate that is stated in IRC 1014(b)(9).
As is often the case, there are exceptions to exceptions in the code. The exception in IRC 1014(b)(9) that the value must be included in the estate has an exception for property that is described in any other paragraph of section IRC 1014.
We are discussing property described in section 1014(b)(1) so this is property that is described in any other paragraph than paragraph (b)9 of section IRC 1014.
Under section 1014(b)(9)(c), paragraph section 1014(b)(9) does not apply.
Hope this clarifies for you.
Again, thank you.
Yes , It is me again....
I am still uncertain about what to do when my father passes.
He is a NON US person and he is the life tenant of a property
outside the US to which I am the remainderman. I reported
the percentage of remainder interest as a gift on Form 3520.
You layed out that the property with life estate receives step
up basis upon passing of life tenant.
When my father passes do I have to file Form 3520 again
with step up FMV of the same property ?
THANK YOU !!!!
Could you explain what the step up amonut in this case?
Do you mean the difference between the first reported remainder interest
on Form 3520 and the full FMV at time of life tenant passing ?
There are some pretty stiff penalties with these information reports.
Is there anyway I could get fined for inaccurate reporting ?
I want to be prepared. When my dad passes it will be a
traumatizing event with funeral and all and I have a lot to take care
of in Germany where he is. I have to be careful to not accidentally
forget any reporting requirements in the US since I will already be
dealing with all that from the german side.
Lets do an example:
in 2005 a life estate deed is done the property value is 400k.
the remainder interest just for arguments sake is 25 %
so 100K get reported on form 3520. In 2013 life tenant passes
and the full FMV of the property increased to 600K by 2013.
What is the step up amount that gets reported on 3520 for 2013 ?
Thank you for your help
Yes , this is extremely helpful and clarifies it to me.
Is there anyway the IRS could penalize me if I go forward like this ?
"It is at the time of inheritance and not the time of passing that it will be reported - which may or may not be in the same tax year"
That would be the time when the change is entered in the property register ? In Italy they will remove my father`s usufruct and make me the full owner 100/100 . The year that change occurs I file a new 3520
Thank you so much again , I think I am beginning to see the light......
"There is no way for the IRS to penalize you if you follow the rules and regulations and timely file and pay, no."
So there is no way than that the IRS will not except a step up in basis in the above described situation ?
What would you do in my situation ?
Hi there again,
listen why is it that when I present the same facts to a tax lawyer ,
I do not get a clear answer ? This is what the last one told me:
"Unfortunately, it is hard to tell. However, there is a possibility for the transaction to be treated as a gift, in which case step up basis would not be available."
and in order to find out they offer me an analysis with a flat fee of many thousands of $$$..... propably only to tell me sorry no step up....
I very much appreciate all your time , do you have any idea how I
can get some "insurance" ? Like someting in writing.
If I follow the rules you layed out what is the worsed that could happen ?