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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 394
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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We are both (my wife and I) on SS, legal residents and about

Customer Question

We are both (my wife and I) on SS, legal residents and about to come up with some money from the sale of a property that my wife's aunt left her in South America.
My question has two parts:
a) Are we subject to taxation (CA residents) in that inheritance and if yes at what rate?
b) Can we bring the actual cash through customs if we declare it?
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

You are not subject to tax on the inheritance, but you are subject to tax on the gain from the sale of the property. As a US citizen or resident, you are subject to tax on your worldwide income. Your basis in the inherited property is the Fair Market Value (FMV) on the date that your wife's aunt passed away. If that was fairly recently, then the sales price is probably the same as the FMV. So you would more than likely incur a small loss due to the closing costs. IF there were any gain, it would be small.

 

Depending on the country, you may have to pay local income or gains tax on the sale. If you did have to pay any tax, it would be available to offset any US tax on the transaction.

 

You could bring the cash through customs, but travelling with a large amount of cash, especially in South America, can be very dangerous. I have travelled through several countries in SA, and sometimes I don't even bring my watch or wedding ring! While you could bring the cash, declaring it would be the start of a paperwork nightmare. While it was legally obtained, you would still have to document it and have it verified when you passed through customs. Then when you deposited the cash in your own CA bank, if it is over $10,000 the bank would report it to the IRS, and you would have to explain it again!

 

A much simpler solution is to find a SA bank with a US correspondence bank, i.e., a US branch. Citibank and Chase would be good places to start. Barclays is another. By having one of these banks wire the money to your US bank account, you would both create a paper trail that is acceptable to the IRS and Customs, and would avoid lots of hassle down the road.

 

I hope that I have answered your questions! If you have any more, please feel free to ask me, I would be happy to assist! If you have found my answer helpful, please rate me highly! I would appreciate it!

 

Thanks again! Have a great weekend!

 

Roger

Customer: replied 1 year ago.

So there is no way around the tax, there is no once in a lifetime exemption? or anything like that?


We are in our 70's, no work, no property, no stocks, no bonds, no savings, no retirement and basically no income from SS, just less than $1000/month between the two of us.


Don't waste your time explaining about SA, we are from there, know ALL about it.


The situation is that in Argentina es impossible to get money out of the country "legally" the gov just won't let you, period!


When you say "you have to justify it" wouldn't escrow papers be enough?


You also mentioned " verify it" can you please elaborate?


I need to know what I am getting into.


What would it be the rate of the tax then.


Thanks!


E

Expert:  taxmanrog replied 1 year ago.

As far as the tax goes, I don't think you will have a problem. You inherited the property. Your basis for tax purposes is the FMV on the date your wife's aunt passed away. How long ago was that? As I said, if the sale was near the time that your wife inherited the property, there would be no gain, perhaps a small loss.

 

Also, if your income is as low as you have indicated, your capital gain would not be taxable at all if it is small. I would have to know some numbers - sales price, the FMV of the property when the aunt died, dates of each - I could calculate the gain and the amount of any tax.

 

I am familiar with the trouble people have getting money out of various countries. I have several clients who had accumulated cash in South Africa. They bought boats, jewelry, artwork, precious metals, and shipped/sailed them out of South Africa.

 

If you brought the cash into the US, declared it, you would have to prove that the money came from legal sources. The escrow papers would help with that. Perhaps you could also get a copy of the will where the property was left to you, and other closing documents. These would also lend credibility to how you got the cash.

 

The "verify" that I was referring to is to Homeland Security. They are always on the lookout for drug money. If you brought that large sum in, that would be their first thought. So if you did bring it in, make sure you DO declare it, don't hide it. Then if you have your documentation that they can confirm, you should not have a problem.

 

As I said, if you give me the information I requested, I can calculate your gain and tax.

 

I look forward to your reply.

 

Thanks!

 

Roger

Expert:  taxmanrog replied 1 year ago.
I was just following up on your question. You did not indicate if you had any more questions, or if anything in my answer was not clear.

If anything is not clear, or if you have questions, please feel free to ask! If my answer helped you, please rate me highly, as this is how the question is closed and I am credited.

Again, thanks! Have a great week!

Roger
Customer: replied 1 year ago.

Well I might have not presented the case as it maybe I should have.


Because of estate laws with inheritances when my wife's aunt decided to give her the apartment she was alive so there was "a sale" to enable the transfer of the property to my wife's name with the right for the aunt to live there till her death.


There was not an actual payment for the apartment, it was just agreed that the price was an X amount of $ that we have give her thoroughout of all the years financially supporting her.


This was about 7 years back, there is (almost over now) an issue with the title but after 6 years of legal tangles it is just about to have a verdict and clear the title fully.


The aunt passed about 5 months ago.


The property probably would sell (wild guess) around $150k to $175K


We have a few debts over there that we have to pay plus the selling fees, escrow fees, etc.


In all likelihood we wouldn't be bringing all the cash at once, that is a risk I wouldn't take in a million years.


Maybe to make the impact of the gain to spread it out in a couple of years?


I do not know you the expert.


Let me know if you need any more clarifications or precise amounts.


Thanks


E

Expert:  taxmanrog replied 1 year ago.
How much have you given your wife's aunt over all the years you supported her?
Customer: replied 1 year ago.

Man! no clue exactly, but conservatively I would say the equivalent of about U$A 2500 a year since around 1980 or 81, do not remember when her husband passed but somewhere around there year more or year less

Expert:  taxmanrog replied 1 year ago.

Do you have any idea as to what your wife's aunt paid for the house when it was originally purchased? Or what it was worth when her husband passed away if he owned it?

 

I need this to estimate the gain.

 

You are totally correct in bringing the cash back a small amount at a time.

 

Roger

Customer: replied 1 year ago.

Roger,


They bought it 1958 for $275,000 arg pesos at the time. which was about $6500 US dollars


If you want to have fun, check this out http://en.wikipedia.org/wiki/Historical_exchange_rates_of_Argentine_currency


For your information, since then to now the pesos were devaluated a gazillion times and countless zeros removed from its value since 1969 (I believe 13 zeroes)


In any event hope this helps


Ed

Expert:  taxmanrog replied 1 year ago.
I am familiar with hyperinflationary currencies! I worked in Caracas, Venezuela, in the early 1990's, and when I arrived the exchange rate was 115 Bs per dollar, when I left three weeks later, it was 163 Bs per dollar.

If the cost at the time was about $6500 US, do you know if they did any improvements to it over the years? If they bought it in 1958, I can only imagine the number of furnaces, A/C units, a few new roofs, water heaters, etc, that would have had to have been replaced, to say nothing of any remodeling or additions! My parents live in the house my dad built in 1963, at a cost of about $15,000. Because of various additions, remodels, etc., we calculated last year that they put in over $125k over the past 50 years! It adds up quickly!

Two questions: Do you have any idea or even a rough guess as to what these would have been over the years?

Second question: When did your wife's uncle pass away? What was the dwelling worth at that point?

Thanks!

Roger
Expert:  taxmanrog replied 1 year ago.

I just checked and in 1958, the exchange rate was 0.1753, so the ARS275k pesos would be about US$49k, plus the improvements.

 

Let me know.

 

Roger

Customer: replied 1 year ago.

Roger, you said:


Two questions:


1) Do you have any idea or even a rough guess as to what these would have been over the years?


Answer; No idea, they did a big serious remodeling in the early 70's which included windows, new baths (2) and kitchen, extra outdoors kitchen and lanai, re-wiring and paint, some flooring too.
Impossible to know the cost, there is no way on earth we could figure that out.

2): When did your wife's uncle pass away? What was the dwelling worth at that point?


Answer: passed in 1980 or 81, no clue as of the property's worth back then

Thanks


Ed

Customer: replied 1 year ago.

After checking in another website it appears to be correct

Expert:  taxmanrog replied 1 year ago.
Welcome back! I was waiting for you to answer!

If you have no idea what the cost of the renovation would be, then you would have to use zero. That would leave you with the cost basis of the house, which would be about $49k, as I stated above. Assuming your income is $12k from Social Security, your Federal income tax would be about $6,900 if you sold the house for $175k, and your Federal income tax would be $3,150 if you sold it for $150k. That will give you a range of what you should expect. Any costs that you have to pay at close (realtor's commission, transfer taxes, title costs, title insurance, etc.) will reduce the sales price and therefore reduce the tax.

The California income tax burden would be about $5,800 if it sold for $175k, and about $3,600 if it sold for $150k. Again, any costs that reduce the gain for Federal as I discussed above will also reduce the California tax burden.

You might check with some local realtors when you are in country to see if they could estimate the fair value in 1981, when your wife's uncle passed away, if the amount is higher than $49k, it would be to your benefit. Another option would be the local property tax assessor, so see what they listed the tax value at back then. It would benefit you to spend some time doing that, if possible.

I had another expert also tell me that pulling the cash out of the country in smaller amounts would be a good idea. Just remember to carry your documentation with you and declare it when you come through US Customs!

I hope this answers your questions! If you have more, please let me know, and I will be happy to answer. If I have helped you, please rate me highly! I would appreciate it!

Again, thanks! Have a great week!

Roger

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