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Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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I inherited property in Sri Lanka on my fathers death in

Customer Question

I inherited property in Sri Lanka on my fathers death in 1967 (I was living in the UK, moved to US in' 81). I left the property for mother's and sisters use. Now finally intend selling the property for some $700,000. Do I have a tax liability, .
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Please provide specific IRS reference with your answers.
Thanks
Upendra
Cell XXX XXX XXXX
Expert:  Tax.appeal.168 replied 1 year ago.

In order to provide a specific IRS reference, I need to know what your residential status is.

Assuming that you are a U.S. Green Card Holder, the same tax rules that apply to U.S. citizens will apply to you. This means that if you incur a gain on the sale, you will be required to pay capital gains tax. As the property was inherited upon your father's death, the Step-Up in basis applies, which means that the cost basis of the property is the fair market value of the property at the time of your fathers's death.

Example:

Let's say that when your father died, the property was worth $400,000. That would be the cost basis. The property sells for $700,000, that's a $300,000 gain. The home sale exclusion does not apply to inherited property.

Customer: replied 1 year ago.
You can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of your home if you meet the Eligibility test.If you were ever away from home, you need to determine whether that counts as time living at home or not. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone).I believe that above provisions in 523 applies.Please confirm
Customer: replied 1 year ago.
Please let me if the provisions in 523(IRS) applies. I continued to live in the property intermittently over the years and mother was resident in the property per my request.
Customer: replied 1 year ago.
further FYI I am a U. S citizen
Expert:  Tax.appeal.168 replied 1 year ago.

There are two qualifications that have to be met in order to qualify for the exclusion.

1) Ownership: If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.

2) Residence: If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

If you meet both requirements, the exclusion will qualify. **Specifically note the 2nd requirement**

Customer: replied 1 year ago.
I believe your response is erroneous as there is no tax on inheritance (unless a very large amount)BestWick
Expert:  Tax.appeal.168 replied 1 year ago.

There is no tax on an initial inheritance, however, capital gains tax can come into play if property is sold and qualifications are not met to meet exclusion requirements. As you seem displeased with my responses thus far, I will opt out and let someone else take it from here.

Customer: replied 1 year ago.
Thanks I appreciate your answer and clarification caused by lack of facts on my part. It was diolution of an estate (fathers) inclusive of property therefore in fact my inheritance is money . Is that a realistic position . It is Ok charge me for this question
Customer: replied 1 year ago.
Thanks - I take the view that my inheritance was money on dissolution of my fathers estate by executors
Customer: replied 1 year ago.
Once again my apologies. The inheritance from overseas is money on dissolution of my fathers estate by the executors.What tax papers do i need to prepare ?
Expert:  Tax.appeal.168 replied 1 year ago.

Sorry for the delayed response. I was away from the computer. If the cash that you inherited is $100,000 or more, you need to complete the Form 3520, which is an information form. If the amount of cash inherited is less than $100,000, there is no reporting requirement. SEE BELOW:

Reporting Requirements
You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

  • Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

or

  • Gifts valued at more than $13,258 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).

You must aggregate gifts received from related parties. For example, if you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000. Report them in Part IV of Form 3520. Treat gifts from foreign trusts as trust distributions you report in Part III of Form 3520.

File Form 3520 separately from your income tax return. The due date for filing Form 3520 is the same as the due date for filing your annual income tax return, including extensions. You file an annual Form 3520 for all reportable foreign gifts and bequests you receive during the taxable year. See the Instructions for Form 3520 for additional information.

REFERENCE SOURCE:

http://www.irs.gov/Businesses/Gifts-from-Foreign-Person

Link to Form 3520/instructions:

http://www.irs.gov/pub/irs-pdf/f3520.pdf

http://www.irs.gov/pub/irs-pdf/i3520.pdf

Let me know if this clarifies matters for you.

Customer: replied 1 year ago.
Thanks this is very helpful. So if I assert that the inheritance was money then there is no inheritance tax and neither capital gains tax. What does it take to assert such a position. I can get a testimonial from the executor of my fathers estate and a statement from the real estate attorney.I would appreciate your suggestions. Please let me know the additional charges for this research
Expert:  Tax.appeal.168 replied 1 year ago.

Hello again, I am glad that you found my last response helpful. Please be so kind as to provide a positive rating so that I can receive credit for the assistance provided thus far. Upon receiving the positive rating, I can further assist you. Thank you in advance.

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