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my mother inherited property in Russia, sold it and gifted…

my mother inherited property in...
my mother inherited property in Russia, sold it and gifted me the money. Does she or I have to pay any taxes on this money? If yes, how do I report it to IRS?
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Answered in 5 minutes by:
8/9/2012
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,984
Experience: Taxes, Immigration, Labor Relations
Verified

LEV :

Hi and welcome to Just Answer!
Is your mother US citizen or US resident?

Customer:

US resident

LEV :

Plz let me some time to prepare the answer...

Customer:

ok

LEV :

Several issues...
1.
Neither gifts nor inheritances are not taxable income in the US.
So - you do not need to include your gift into your tax return and your mother does need to include inheritance on her tax return.


Regardless of the value. Please see for reference IRS publication 525 page 34 (left column)- http://www.irs.gov/pub/irs-pdf/p525.pdf


Gifts and inheritances. Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.


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2.


The donor (the person who makes a gift) who is an US citizen may be required to file a gift tax return if the value of the gift is above $13,000 per person per year.


That would be the donor who files form 706 - not recipients of the gift.


Refer to Form 709 , 709 Instructions


There will not be any gift taxes unless the lifetime limit of $5,000,000 is reached (adjusted every year).
So - your mother would likely need to file a gift tax return.
3.
As an US resident - your mother is required to report all her worldwide income. Thus when she sold inherited property - that transaction is reportable.
Her capital gain = (selling price) - (basis) - (selling expenses)
The basis for inherited property is generally equal to its fair market value at the time the decedent passed away - so most likely - there is no taxable gain (however there might be different determination for those died in 2010)
4.


To report foreign inheritance, you need to file form 3120 - http://www.irs.gov/pub/irs-pdf/f3520.pdf (see instructions for details - http://www.irs.gov/pub/irs-pdf/i3520.pdf) to declare transfer from the foreign country. There is no tax associated with this form.
That is what your mother should file to report the fact of a foreign inheritance.
Let me know if you need any clarification on the above.

Customer:

So my mother reports the sale of the property in Russia, form 3520. I think the property was worth the same at the time of inheritance and sale, so no money gained. And to report the gift of money to me she fills out 706 form and I fill out 3520 reporting the wire of money to my account as a gift? Is that correct?

Customer:

Another thing, she is receiving SSI, would that money effect her benefits?

LEV :

You are correct - your mother should report (1) the fact of receiving a foreign inheritance (form 3520); (2) the fact of selling assets (form 8949 and schedule D on her tax return); (3) the gift transaction (form 709 - gift tax return).
Most likely - there will not be any tax liability - just reporting requirements.
Yes - SSI benefits are based on her needs. As she received an inheritance - under the law - it should be included into her assets - and may affect her eligibility. Gift transactions are reported on applications for public aid within five years after the gift.

Customer:

Even if she gifts the money to me? So technically once she gifts that money to me, she is back on SSI?

Customer:

Oh, I think it makes sense now, she will not be eligible for assistance from SSI during five years after the time of the gift?

Customer:

She is also disabled, and I know that disability is not affected by the amount of assets, do you know.

Customer:

Sorry, tell me if I'm asking too many questions..

LEV :

Gifts transactions will affect her eligibility for public benefits within five years.
When she will file an application - there is a question about gifting.
Depending on the amount she gifted - her benefits may be reduced.
After five years - gifts are not accountable fro public benefit eligibility.

LEV :

Please be sure to ask - I want to provide EXCELLENT service.

LEV :

Yes - you are correct - her disability determination is based on her ability to work - not on her assets.

Customer:

She needs her healthcare coverage for a hip replacement surgery and I know she needs both SSI and disability to receive the healthcare benefits... Will she lose her SSI benefits if she gifts me considerable amount of money, or they will just lower her payments and keep her on the program?

LEV :

Each type of public benefits is based on different determination. Thus - her SSI and healthcare benefits are determined differently.
I may not say how her benefits will be affected, but I definitely may say that her benefits might be affected if she gifts away the considerable amount of money and that the fact of gifting should be reported on her application for any need based benefits.
Her case worker may determine the exact effect.

Customer:

I understand. Thank you for your time. May I contact you if I have further questions?

LEV :

You are welcome to contact. You may post a new question starting with something like "For LEV..." and I will be glad to help.
Please be aware that I might be not immediately available - but surely will reply.

Customer:

Great. Are you Russian, by chance? your name...

LEV :

Yes I am

Customer:

Haha, how random! Your profile says you are retired.. I guess I can't ask you to do my mom's taxes.. hmm..

LEV :

The tax preparation is seasonal and is a good supplement to retirement income.
However rules on this site prevent me from contacting customers directly.
Posts are for general information, and do not establish a professional-client relationship.
Thus - I may not prepare your tax returns.
But I will address all your questions in great details.

Customer:

Well, thank you.

LEV :

You are welcome.
Sorry if you expected a different answer.

Customer:

One more question, when does my mother have to report the inheritance?

LEV :

The form 3520 is due by the Apr 15 of the year following she received the inheritance.
However - for public benefit purposes - the law requires to report the fact of changing of her financial situation within 30 days.

Customer:

What happens if she doesn't... I know it's not an option, just wanted to know hypothetically speaking..

LEV :

If no information would be provided - most likely nothing will happens.
However - that means she will provide incorrect information on her applications - and in case of discovery - consequences might be severe.

Customer:

Got it. Well thanks again. Until next time!

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,984
Experience: Taxes, Immigration, Labor Relations
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