Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

Good afternoon. Online system was causing problems, I may

Customer Question
Good afternoon. Online system...
Good afternoon. Online system was causing problems, I may be charged twice.

My mother-in-law, who is a Russian citizen with a U.S. Green card lives with my wife, daughter and myself. She is currently in Russia and is selling her apartment. I did claim her as a dependent on my 2009 return, but may not do so in 2010... but that may raise IRS flags. The amount of the proceeds will be about $150K

1. What are the tax implications (to me) if the money is transferred to my checking account and then to hers (she has not setup a US account as of yet) when she returns?

2. What are the tax implications to her, i.e., captial gains or income for sale of a foreign residence

3. She would like to give at least $100K to my wife and I to either pay down our existing mortgage (have the payments recast) or refinance. What do we need to do to avoid any tax liabilities is it better to transfer the funds directly to our mortgage account or refinance? What can be legally arranged to avoid paying taxes?
Submitted: 7 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 12 minutes by:
9/2/2010
Tax Professional: Merlo, Accountant replied 7 years ago
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified

Hello JA Customer,

 

There is nothing you can do that will avoid the taxes that will be due on the gain your mother in law has from the sale of this residence, regardless of how the funds are used.

 

First, she may have the money transferred to your US account if she does not have one of her own. Transferring the money in itself is not what is a taxable event. The taxable event is the sale of the apartment.

 

If the property is in your mother in law's name, she is the one who will owe taxes on the sale. Assuming she has owned this property for more than one year, the gain would be taxed as a long term capital gain which currently has a maximum tax rate of 15%. Her gain on this sale would be figured by taking the sale price less her basis, less the cost of any selling expenses such as commissions. Her basis in the apartment would be whatever she originally paid for it, plus the cost of any improvement she made while she owned it. So as an example -- if she originally paid $80,000 for the apartment and then spent another $20,000 in improvements, her basis would be $100,000. If she sells the apartment for $150,000, she has a taxable gain of $50,000 at a maximum rate of 15%.

 

Your mother in law will need to report this transaction on her 2010 tax return. The US will allow her to claim a credit for any foreign taxes she may end up paying to Russia on this same transaction, which could reduce or even eliminate any taxes she owes here in the US.

 

Once she pays taxes on her gain from this sale, she may give the money to you and your wife as a gift to use in any manner you wish. The only requirement would be that she file Form 709 with the IRS to report the value of the gift.

 

First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due.

 

In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.

 

If this was helpful please press the Accept button. Positive feedback is also greatly appreciated.

 

Thank you

 

 

Ask Your Own Tax Question
Customer reply replied 7 years ago

My mother-in-law has had the apartment for 40 years. After the fall of the Soviet Union, ownership of the apartment was transferred from the state to her. She paid nothing for the apartment.

 

Additionally, I thought everyone was due a one-time capital gains exemption on proceeds gained from the sale of a home? Would she need to purchase a home jointly with us to "rollover" the proceeds and claim the one-time exemption?

 

What if the funds were wired directly to our lender? What reporting requirements does the lender (and us) have to the IRS? Tennessee has no state income tax.

Tax Professional: Merlo, Accountant replied 7 years ago

Hello again JA Customer,

 

Many years ago the IRS used to allow taxpayers who sold their primary residence either a one time exemption on paying tax on the sale or they could reinvest the money in to another primary residence and defer the tax. Those rules changed many years ago.

 

The new rules allow a taxpayer who sells their primary residence to exclude the first $250,000 they have in gains from being taxable. But in order for the property to be considered the taxpayer's primary residence, the taxpayer must have owned the property for at least 2 years and also must have lived in that home for at least 2 of the last 5 years preceding the sale.

 

You said that your mother in law lives with you here in the United States, so I just assumed that she does not meet the rule of having lived in this home for 2 of the last 5 years. If she does meet that rule, then she could exclude her first $250,000 from being taxable. Basically she cannot have moved out of the house more than 3 years prior to the date she sells it in order to qualify for this exclusion.

 

That is the only possible exception to taxes that your mother in law will owe. It does not matter if she has the money transferred to you or to your lender or anyone else.

 

It will strictly be your mother's responsibility to report this sale on her own tax return. It is not your responsibility or anyone else's responsibility to report this sale or to report receipt of this money.

 

 

Thank you

 

 

Ask Your Own Tax Question
Customer reply replied 7 years ago

This will be my last question. I'm sorry to be so pesky, but I've contacted several CPAs in my area and they won't return phone calls.

 

My mother-in-law was claimed as a dependent on my 2009 tax return. If she files independently of my return in 2010, will that raise an audit flag with the IRS? If I claim her as a dependent in 2010 ( she would have been in our home for about 6 months this year) won't the proceeds from the sale of her home be counted as my income since she would be claimed as a dependent... or is that only in the case of minor children?

 

Also, she just received her Green Card last May, 2010 and hasn't officially moved to the US... she was with us from May of 2009 to May, 2010... all the time in last 5 years has been at her apartment.

 

Thanks, Greg

Tax Professional: Merlo, Accountant replied 7 years ago

Hello again Greg,

 

First, if your mother in law lived in the apartment in Russia all the way up until May of 2009, then as long as she sells that apartment by May of 2012, she will satisfy the rule to claim this as her primary residence, because she will still have lived in the home for at least 2 of the last 5 years preceding the sale. That being the case, her first $250,000 in gains is not taxed. Since the sales proceeds will only be around $150,000, she is well below the exclusion amount and would not owe any taxes on this transaction, and in fact, she will not even be required to report the sale on a tax return.

 

As far as you claiming your mother in law as your dependent, please understand that when you claim someone as a dependent, that does not mean that any income they have for the year is counted as your income for tax purposes. The income still remains the income of the dependent, and if they need to, they file their own separate tax return. The only difference would be that if they need to file their own tax return, they do not claim an exemption for their own personal allowance Instead, they just check the box on line 6 of Form 1040 which says they can be claimed as a dependent on someone else's return. So claiming your mother in law as a dependent does not mean that you become responsible for reporting her income as your own income.

 

Even in the case of minor children, the income of the children is not treated as income of the parents. There are some special rules regarding investment income received by minor children. If minor children receive over a certain amount of investment income, then the income is still considered to be income of the children, but it is taxed at the higher rate which applies to the parents. This is to prevent parents from shifting their investments in to the names of their children in hopes of paying a lower tax rate. But this would certainly not apply in the case of you claiming your mother in law as your dependent.

 

BotXXXXX XXXXXne here is that since this does qualify to be her permanent residence, she will not owe any taxes on the sale and she does not have to file a tax return to report the sale. You can continue to claim her as a dependent on your own return as long as you continue to meet the rules to do so.

 

 

Thank you Greg

 

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified
Merlo and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Merlo Your Own Question
Merlo
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
9,783 Satisfied Customers
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad

Merlo is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
What are the taxes rates 2016 for term gains in irrevocable
what are the taxes rates 2016 for long term gains in irrevocable trusts … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
727 satisfied customers
Accidentally sent IRS an unsigned copy of our 2016 form 1040
accidentally sent IRS an unsigned copy of our 2016 form 1040 and later received a form 3531 requesting a valid original signature. Should that returned signature be dated to the original submittal dat… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
727 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
A foreign individual is a member of a US LLC. Are there any
A foreign individual is a member of a US LLC. Are there any extra requirements for filing when it comes to the partnership return?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,466 satisfied customers
Figure out how much is my tax liability + my capital gains +
Figure out how much is my tax liability + my capital gains + depreciation recapture tax … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Is the sale of customer list a capital gain or ordinary income?
Is the sale of self-created intangibles, such customer lists, digital files, web sites, etc subject to capital gain or ordinary income treatment?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
We have $400,000 in capital gains for the sale of our
We have $400,000 in capital gains for the sale of our California home of … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
RE: FOREIGN TAX CREDIT We're filing a married joint filing
RE: FOREIGN TAX CREDIT We're filing a married joint filing tax return and have come up against some problems on form 1116. 1) Do we add both our names on the form? 2) On line 3a, it asks for certain i… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,466 satisfied customers
Estate capital gains tax rate for 61, single, unable to
estate capital gains tax rate for 61, single, unable to work, is claimed as a dependent form sister,only income collects $500 month stipend from gov., which pays for health insurance and meds. is gett… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
How to report the sale of a property outside US? How to
How to report the sale of a property outside US? How to claim the taxes paid abroad on the profit made by selling property overseas?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What is the capital gains tax on proceeds of the sale of a
What is the capital gains tax on proceeds of the sale of a home? … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
abci168
abci168
Principal
27 satisfied customers
What would the federal and state tax rate percentages be for
What would the federal and state tax rate percentages be for a $7700 IRA early withdrawal in Ohio?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,466 satisfied customers
Summary: I did receive IRS audit for un-reported income for
Summary: I did receive IRS audit for un-reported income for year 2014. Details: my brother did taxi service and I did open square up merchant account so he can charge his customers using credit cards … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
Second opinion] Has the tax rate in Peru on capital gains
Second opinion] Has the tax rate in Peru on capital gains for non residents recently been changed? I heard it is now 5% and no longer 30%.… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
How are canadian pensions reported on us form 1040. the
how are canadian pensions reported on us form 1040. the amounts on the pension form in canadian dollars or us dollors when mailed to a canad***** *****ving in us.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
What is capital gains tax rate for sale of home: My mom is
What is capital gains tax rate for sale of home: My mom is selling her home and has zero income. She is on social security. … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x