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I am a U.S and Russian citizen. I sold my apartment in Russia

and would like to legally...
I am a U.S and Russian citizen. I sold my apartment in Russia and would like to legally transfer money to U.S. I would like to know what is the most tax efficient way of doing it given my circumstances:

Apartment was bought in 1995 ( I was 8 years old) for my mother and I 50/50 for 50mln rub on paper. In 2006 I traded a part of my property in another apartment for my mother’s half of the current apartment. I have just sold the apartment for 12mln. Here are the questions:

1. Am I responsible for any capital gain tax if my apartment was bough as a primary residence in 1995 when I was 8 years old? If Yes,

2. Will I be in the clear by just claiming to the IRS that since it was bought for 50mln rubles and sold for 12mln rubles, I am not responsible for capital gain tax? Or will the IRS try to figure out what 50 mln rubles was actually worth in Russia back in 1995? (Due to hyperinflation, currency re denomination, devaluation ruble in 1998, and many other factors, it is really hard to tell).

3. If the IRS would try uncover true value and claim that there is capital gain tax to pay, would it make more sense to transfer the money to my wife's account in the U.S? If I transfer the money to my wife's account (who is not an LPR yet, but may be considered a U.S resident for tax purposes based on the time she spent in U.S and we have filed a joint return last year), will she be required to show the source of funds and may that somehow backfire? May she be exempt since her current status is J-1 overstay?

Regards,

Denis
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Answered in 16 minutes by:
10/29/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

How are you today?

Megan C :

If you sold the house for less than you purchased it for, then there is no capital gain and therefore no tax

Megan C :

As this is a personal use asset, no loss is allowed. So, you will not deduct a loss but you will not have a taxable gain, either

Megan C :

so the proceeds are essentially tax free.

Megan C :

All you need to do is simply wire the money from your account in Russia.

Megan C :

Also, I'm sorry but your requested professional is not online right now

Megan C :

However, as you pay US Tax in US currency you would have to translate the cost to US dollars. So yes, you would have to go back and determine how much 50 mln was worth in 1995 versus what 12 mln is worth today

Megan C :

If there was a gain, then you would have a capital gain regardless of whether or not you sent the proceeds to your wife. There is no way to side-step capital gains if the gains do exist.

Megan C :

As she is a resident for tax purposes, (based on the substantial presence test) she is taxed on her worldwide income.

Megan C :

However, as the US and Russia have an income tax treaty, according to Article 9, you would be taxed only in Russia on the sale of property situated there.

Megan C :

You can CLICK HERE to read more about that.

Megan C :

Do you have any further questions about this matter?

Megan C :

So, the botXXXXX XXXXXne is that if you had capital gains, it would be calculated by translating into US dollars the purchase price and sales price. However, since there is a tax treaty with Russia you will not be taxed in the US on the sale of property in Russia.

Megan C :

Please let me know if you need anything additional. If not, please rate as "excellent" so that I may receive credit for assisting you today

Customer:

Thank you for the answer Megan,

Customer:

I have a few follow up questions:

Megan C :

You're welcome

Megan C :

Okay

Customer:

First, are you the professional I am going to be working on from now on or I should still expect an answer from the original Tax attorney I requested. This may not be an issue, I just like to understand how this works.

Megan C :

You will work with me. If you would rather work with the other professional, I can step aside and you can await a response from him

Customer:

Okay, Based on numerous replies I have read on the forum from tax professionals, there exists responsibility for gapital gains on property sold in Russia. This seems to be at odds with the tax treaty you mentioned. Could you please clairfy?

Megan C :

You can review the tax treaty. Article 9 states that a resident of one contracting state that receives income from property situated in the other contracting state will be taxed in that other state

Megan C :

So you as a resident of the US will be taxed on the sale of your property in Russia in Russia

Megan C :

If you do not use the tax treaty benefits, then you would pay capital gains tax here.

Customer:

Okay, from what I understand, the only requirement that would be my responsibility is a statement from the "russian IRS" that I paid taxes here?

Megan C :

You don't need a statement from them to claim the benefits.

Customer:

And Russia is a contracting state?

Megan C :

Yes, the US and Russia are both contracting states

Customer:

Ok, I read through the declaration. I will submit a excellent rating. Is it also possible to receive an opinion on this from the tax attorney I originally requested?

Megan C :

Yes, I will put the question back on the board after you rate, and he can grab it when he gets in.

Customer:

Great. I appreciate your input and will await further communication from the attorney. Thank you for excellent service.

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
Megan C and 87 other Finance Specialists are ready to help you
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Thanks, Denis for your positive rating. Please come back and visit me any time you have a tax question that needs answered. It was a pleasure working with you today.
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Customer reply replied 4 years ago

Hi Megan,


 


I inquired about my tax obligations is Russia and based on what I have learned, i am not subject to capital gain tax since the apartment was sold more than 3 years after purchase.


 


Am I still exempt from U.S tax even if I am exempt from taxes in Russia?


 


Thanks,


 


Denis

Thanks for your follow up. Yes, you would still be exempt due to the tax treaty.

Please let me know if you need anything additional!

Megan
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Customer reply replied 4 years ago

Megan,


 


I was very satisfied with you prompt and comprehensive response.


 


Because what you advised me was so different from what was advised by the expert I originally contacted (http://www.justanswer.com/tax/0tdgr-pay-tax-when-sell-property-outside-usa.html), I would really appreciate a second opinion.


 


You mentioned that my response would be picked up by him but I haven't received anything yet. How can I receive some feedback?


 


Thank you,


 


Denis

Denis,

I will place this back on the board, for him to pick up. However, if you reply to me, it comes back into my queue and so he would be unable to see it.

Thanks so much!

Megan
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Customer reply replied 4 years ago

Megan,


 


I still haven't received any feedback from the other tax pro. What can I do?


 


Denis

I'm sorry. I will bump it back up to the top for you.

Thanks

Megan
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,592
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