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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My daughter Jane has dual US and Canadian citizenship. She

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My daughter Jane has dual US and Canadian citizenship. She lives in Canada and is about to purchase a house in Canada as her official residence. Her parents reside in Canada and are Canadian citizens. Each parent plans to assist her purchase of the house providing $110K each to Jane's $220K for a purchase price total of $440K Canadian. On the death of each parent Jane will inherit that parent's share from that parents Will.
If the house is registered JWTS what are the US tax implications if any.
If the house is registered Tenants in Common what are the US tax implications

Lev :

Hi and welcome to our site!


The gift is also not taxable for recipients.


Please see for reference IRS publication 525 page 31 left column - - http://www.irs.gov/pub/irs-pdf/p525.pdf


Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.


There is no any amount limit. That is for income tax purposes.

That would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year.


There will not be any gift taxes unless the lifetime limit of $5,250,000 (adjusted every year for inflation) is reached.
However - considering your situation - because donors are not US persons and the gifted assets are not suited in the US - that is a foreign gift - and donors are not under US jurisdiction and the US gift tax return is not required.

Lev :

The fact of receiving the gift from a nonresident alien is separately reported on form 3520.
-http://www.irs.gov/pub/irs-pdf/f3520.pdf.
In general, Form 3520 is due on the date that your income tax return is due, including extensions. There is no tax associated with that form. Only gifts above $100,000 are reported.

Lev :

So far -
(1) there is no income tax consequences for your daughter Jane
(2) she would need to file form 3520 to report the gift from nonresident aliens
(3) there is no income tax consequences for donors
(4) there is no US tax due - neither income nor gift tax.

Customer:

So basically,there would be no problems with US gift tax. Would Jane have to file the receipt of the inheritance in her US income tax for that year if the property is owned JTWRS? In other words is the inheritance taxable as income in the year it is received?. What about the Tenants in Common situation as far as the US IRS is concerned?

Lev :

There is no inheritance issue as long as the person is alive.
"Inheritance" means - assets are transferred because of the death of the original owner.
In case of foreign inheritance - it is reported on the same form 3520.
But as I mentioned above - neither gift nor inheritance are not taxable in the US.

Lev :

"Tenants in Common" - means a legal form of the ownership. From income tax prospective - it is important who owns and which part. If there is no other issues - the ownership is considered in equal parts.

Lev :

So - assuming - Jane and two other own the property as "Tenants in Common" - that generally means - Jane owns 1/3 of the property.

Lev :

The issue might come if the property is sold - in this case Jane will report only her part of the sale transaction.

Customer:

What if the purchase agreement on the house specifies each person's share in dollars does that over ride the equal ownership that normally applies?

Lev :

In case of a joint ownership - you may specify each person's share in dollars - but that will be transferred into percentage shares at the time of purchase. If the property value increases or decreases - that percentage shares will stay the same.
Thus if for instance the property appreciated greatly and sold with the gain - for income tax purposes - the gain must be recognized by each co-owner according with their percentage of ownership.
The percentage of ownership may be not equal - for instance one owner may own 20% and other two - 40% each - that is determined between co-owners.

Customer:

To sum up. If the property is bought either as JTWRS or TIC, no income taxes are assessed by the IRS on Jane when the the share each parent owns in transferred on death of each parent under current IRS rules?

Lev :

Yes - that is correct. No income recognized when the property is purchased and because of gifts.
Income might be only recognized when the property is sold. But in case that is her primary residence - the gain is normal excluded from taxable income.
But as long as the property is not sold - there is no issues.

Customer:

Thank you very much. I appreciate your help. Have a good day

Lev :

I am glad to be helpful.

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