Hello. I will be happy to assist you. Was this gift from a person and NOT a trust, partnership or corporation? What is the fair market value of the remainder interest at the time the gift was made?
It was from my father to me. He owned the property outright than it was split
between remainder and usufrutuary
Okay. And what is the FMV at the time of transfer of the remainder interest to you? What is the value of the remainder interest?
I don`t understand your question. I know how to calculate the interest from a table
but what do I need to report once my father passes ?
When he passes away, you don't need to report anything. The only thing the 3520 is concerned with is that you received a gift from a foreign person and whether the value of that gift is worth more than $100,000, in which case you provide further details concerning the gift. When he dies, there's nothing to report because there's no taxable event - he won't pay any US estate tax or have to file a US estate tax return if he is not a citizen or resident alient.
Is there a step up in basis of the property ?
In determining whether the value of the gift is worth more than $100,000, you don't use the full value of the property -- only what the remainder interest is worth. His life estate has value. The full value minus the life estate value is what the remainder value is.
Whether there are capital gain tax consequences or a step up in basis depends on the laws of the country where the property is located - not US law.
When I sell the property I have to report it since I am a US resident.
What basis do I use to determine that basis ?
Yes, sorry for any confusion. For the portion that is taxed in the US, there would generally be a step up in basis at the time of death so that no US capital gains would be paid.
That would be the value of the property at the time of death.
Are you sure about that because I was told this :
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).
Does the FMV at time of death need to be reported on 3520 ?
No, the value of the remainder interest, not the full value of the property.
But that's only if the value exceeds $100,000
So if I inherited a house that is worth 400,000 I need to report that on Form 3520.
If I receive a remainder interest I only report that if more than 100,000.
No, 3520 is for gifts. Inheritance is not reported on 3520. But if the gift were from a foreign person and exceeded $100,000, then yes you would report it. You report any gift. However, if you check the "no" box on the form re value being over $100,000, then you don't provide further details. If you check "yes" it is over $100,000, then you provide further details. So, yes, in your case if the value of the remainder interest is greater than $100,000 you check "yes" and then provide the details.
If it's less than $100,000, you still file the form but check "no" that because it's not greater than $100,000
When I inherit foreign real estate from my Non Us resident father I do not report that on 3520 ?
As noted above, no. You do not report inheritance on 3520.
How do you report foreign inheritence from NON US person ?
You do not. Inheritance is not a taxable event in the US unless included in a person's US gross estate. If you're not a US citizen and have no property in the US, you have no US gross estate for estate tax purposes.
Further, inheriting property is not an income tax event.
When I sell a foreign property and I need to report capital gain or loss on Form 1040
You posted a link regarding the step up.
I have a problem understaning that in plain English it is jargon to me.
About the 3520 and inheritance - let me clarify. You might file the form for inheritance if you did receive a bequest. However, you will not receive a bequest of the property on your father's death because he already gave it to you and reserved a life estate, so there is no inheritance on his death. You already own everything you'll ever have. His interest simply ceases to exist on his death.
Can you explain in simple words why a US resident remainderman gets a step up
on a property that is located outside the US when the NON US life tenant passes
when the property is not part of an US estate ?
I don't think I can make it any simpler since it is such a complex matter. I'll opt out and allow another expert to assist you if they can. You are not being charged for my time and do not need to rate any answer until another expert steps in to assist you. At that time, you can rate that expert's answer. Thanks and have a good night.
So the basis is the FMV at time of death of the Non US life tenant of the not in the US located propertyeven though the property is not part of any US estate and there is no Form 3520 to be filed becauseit is an inheritance.
How than is the FMV at time of death recorded ?
No 3520 for a foreign inheritance over 100K ?
I find that hard to believe .
The problem I have is the inheritance.
With life estate and passing of the life tenant the life estate interest at time of death is zero.There is no official transaction although only at that point does theremainderman have full rights and FMV to the property.
Has anyone ever filed a 3520 reporting a dissolved life estate as an
inheritance with full FMV at time of death even though it was not part
of an US estate ?
I am looking for someone that has actually done this. This situationmust occur more often especially in a counrty that has a lot of immigrants.Were my father a US Person or the Property in the US it would becomepart of a US estate and be stepped up because it is taxablebut it is not.In the country the Life estate was set up the FMV at time of the giftbecomes the basis of the property for the remainderman.In the US apparently donors basis becomes donees basis with gifts.Another perspective is that the basis should be determined by the country were the conditions of the life estate deed was writtenand the property is located.It would than be the FMV gift tax was paid on by the remainderman.
I"f you do not sell the property till your father's death - the property would be considered as inherited - and different rules for determining the basis are used."
How can I be sure that this applies to my situation ?You saw what my tax attorney wrote.
"I do not agree with your tax attorney and provided supporting documents that the IRS takes a different position. You may provide the information to your attorney for considerations or if you do not feel confident working with that attorney - you may consult with a different attorney."Lev,
this all very overwhelming to me and I am kind of lost.
Could I beg you to please providethe supporting information again that I can show my attorney.We can start a new thread or whatever it takes , you are my only
hope in supporting that position.
PS.: When there is an inheritance what date gets put on 3520 , date of death oractually receiving the inheritance (entering in titlebook)
.....and this applies to my foreign life estate situation ?
Can I hire you......
Ok , what is the easiest way to stay in touch with you and how does one find a good tax attorney ?
With complex issues like this the attorney I currently have would cost me thousands $ without getting anywhere.He will charge me his time plus the time for any help he needs fromtheir estate planning dept. just for research. I need somone that has
experience . Paying for research is a bit like learning on the job....
in this case.