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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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My parents own a piece of land overseas that they inherited

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My parents own a piece of land overseas that they inherited many years ago. About five years ago they became US permanent residence, do they have to pay taxes if they decided to sell that real estate

Greetings,

 

In general, a resident or citizen of the United States does pay tax on worldwide income, including sale of land in another country.

The fact that the land was acquired prior to being residents does not change the requirements to report the income from the sale.

 

To reduce or avoid double taxation a credit for the foreign taxes also paid can be claimed on Form 1110 with the US return.

 

In a few cases treaty provisions can provide that only the government of the location of the land can tax the sale of the land; but that is the exception.

See http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

This page provides links to tax treaties between the United States and particular countries. For further information on tax treaties refer also to the Treasury Department's Tax Treaty Documents page.

 

Please ask if you need more discussion or clarification.

Thank you.

 

Customer: replied 4 years ago.

What is the tax percentage they have to pay, and is there any special forms they need to file with the IRS?

Hello again,

 

Residents file Form 1040 and for a gain from sale of property use Form 8949 and Schedule D (same as for US property). As mentioned, that foreign tax credit is on Form 1116.

For more information and links to forms see http://www.irs.gov/taxtopics/tc409.html

 

Long term capital gain rates now depend on the taxpayer's regular income tax rate:

Capital gain rate is zero for the income up to the 15% rate bracket,

Capital gain rate is 15% for the income up to the 33% rate bracket,

Capital gain rate if 20% for income in the 39.3% rate bracket.

(sorry the rules are written to be so complex).

 

For most taxpayers a 15% rate applies to their capital gain income when the property was held for more than one year.

 

Please ask again if you need more discussion or clarification.

Thank you.

 

 

 

Please do ask if you need more discussion or clarification.

Thank you.

 

 

Customer: replied 4 years ago.

You mentioned: Capital gain rate is zero for the income up to the 15% rate bracket, does that mean that they don't have to pay any taxes if they fall in this tax bracket???

Hello again,

 

If their gain plus their other income is below the top of the 15% bracket then the tax is zero on the gain, that is correct. They would still pay the 15% rate on their income other than the gain.

 

Otherwise only that first part of the gain gets the zero rate and the amount over the 15% bracket is taxed at 15%. See the article at http://www.forbes.com/sites/moneybuilder/2013/01/05/updated-2013-federal-income-tax-brackets-and-marginal-rates/

 

For married taxpayers in 2013, the 15% bracket is for taxable income from $17,850 to $72,500, so if their total income is less than $72,500 then zero rate on capital gain does apply and the 15% rate applies to the extent that their total income (including capital gain income) places them in the twenty-five percent tax bracket or higher.

 

Hope that clarifies how long term capital gain rates now depend on the taxpayer's regular income tax rate.

 

Still, continue to ask if you need more help.

Thank you.

Customer: replied 4 years ago.

Since this is a land that they inherited, how is the capital gain calculated?

Inherited land cost used to calculate gain is the value of the land on the date of death.

 

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