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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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Wife is a UK citizen with a green card, living and working ...

Customer Question

Wife is a UK citizen with a green card, living and working in the US since 1980, in Oklahoma since 1987, in Texas from 1980 to 1987. Husband is a US citizen. They were married July, 1987. Wife's mother in UK, gifted her house to her children in November, 1986. Wife's share is 2/5 (two fifths) of 49707.72 pounds for a basis of 19883.09 pounds. The mother resided in the house for more than seven years before moving into a nursing home in the UK where she resides today. The property was sold in October, 2007 and the sum of $120531.15 US was transfered into a bank account with joint ownership of both husband and wife. Questions:
Submitted: 9 years ago.
Category: Tax
Expert:  Lev replied 9 years ago.

The capital gain will be taxable income for the wife and should be reported on the US tax return. The gain is (selling price) - (basis) - (selling expenses). It will be taxable as long term capital gain - not more than 15%. State taxes are extra. If any taxes are paid in connection with that income in the UK - the tax credit for taxes paid abroad may be claimed.

In case you transfer the money to US - because the amount is more than $100,000, you are required to file form 3120 - (see instructions for details - to declare transfer from the foreign country. There is no tax associated with this form.

Please let me know if any clarification needed.

Customer: replied 9 years ago.
Reply to LEV's Post: - Are there any gift tax liabilities (nothing was declared in 1986 in the US)?
- Must the 1986 exchange rate be used to calculate basis?
- Since the money was deposited in a joint account, isn't this income for both husband and wife?
- Are there any documents that must be filed or is schedule D sufficient?
Expert:  Lev replied 9 years ago.

For a recipient of the gift - do not need to claim it as income. Please see for reference IRS publication 525 page 30 -

Gift tax is a responsibility of a donor, but as the donor - your wife's mother is not an US person - there is no any responsibility.

The basis for the gifted property is the same as the donor had at the time of the gift. That is in general a purchase price of the property adjusted by improvement expenses over the time, expenses to obtain a mortgage and refinance (if any). Were the property ever inherited? If yes - there would be different rules? Exchange rate at the time of each transaction should be used.

It doesn't matter who owns the account, but who owns the funds. Do spouses file joint return?

You do not need to add any documents to the schedule D, but you may be asked in case of audit.