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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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We inherited property in a foreign country (we live in the U.S.). The person died in 2010

Customer Question

We inherited property in a foreign country (we live in the U.S.). The person died in 2010 and it was deeded to us in late 2014. We have no idea of the value of the property at the time of death of the person we inherited from and there was no appraisal done for that person's estate. We are getting ready to sell/sold in 2015. How do we determine value for U.S. income tax purposes for next year?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!The basis of property inherited from a decedent is determined based on rules outlined in IRS publication 551 see page 9 - Inherited Propertyhttp://www.irs.gov/pub/irs-pdf/p551.pdfGenerally - that is the FMV (fair market value) of the property at the time the decedent passed away.That is regardless if the property is in the US or abroad. According to IRS regulations - the FMV is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts.
Expert:  Lev replied 1 year ago.
In this case - the tax basis for an inherited assets is set as stepped up basis equals to the fair market value at the time the decedent away.You do need to know that value.You are not required to have an official appraisal - but having such document might be helpful.However - it is OK if you perform appraisal by yourself without hiring a licensed appraiser.
Expert:  Lev replied 1 year ago.
For inherited assets - the basis is so-called stepped up basis equals to the fair market value at the time the decedent passed away.
Fair Market Value is defined as:
"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate."
That is according to Regulation §20.2031-1.
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In laymen terms - fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
If the property was not sold - the FMV is determined by appraisal.
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Inheritance itself is NOT taxable.
However the GAIN realized from the sale of inherited property is taxable.
That means - if the property is sold shortly after - there would not be an taxable gain.
However if the property value appreciated after it was inherited - the difference would be your taxable gain.
The gain is calculated as (selling price) MINUS (basis)
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If the property was not sold when the decedent passed away - the FMV is determined by historical appraisal.
Generally the appraiser uses comparable sales of similar assets in the same area and about the same time.
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Let me know if you need any help.
I am here to help you with all tax related issues.