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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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If I sell my hotel property in Mexico that is owned by a mexican

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If I sell my hotel property in Mexico that is owned by a mexican corporation that I have shares of stock in, will I also be subject to US capital gains as an individual when I repatariate the money? It is better to sell the shares of stock in the corporation as an individual here and then get a tax credit in the states for the capital gains paid?

If I transfered the money from the proceeds of the sale to a Caymans account and then wire the money into a Nevada corporation, will I have to pay capital gains in the US?

Can I gift the money, the proceeds of the sale, to my girlfriend, should I wire the money into her account in the US or should she transfer from her account from Cayman into a Nevada Corporation?
Will my girlfriend have to pay taxes in the US, if it's a gift from overseas?

Lev :

Hi and welcome to Just Answer!
If you simply own shares of the Mexican corporation - generally there is no gain or loss recognized unless shares are sold.
For US income tax purposes - your income from the corporation may be with following situations - corporation pays you wages for services you provide to that corporation, corporation pays you dividends as a shareholder, you sell shares of the corporation and realize capital gain.
It is possible that assets are distributed from the corporation to you as a shareholder - no gain is realized - but your basis is reduced by the fair market value of the asset; when your basis is reduced to zero - the difference will be your gain.

Lev :

As long as you personally receive the money - it doesn't generally matter how the money are used. Thus - you may contribute proceeds to another corporation gift to another person, etc - still that will not help to avoid the tax liability. You may gift the money to your girlfriend - the gift is not a taxable income for the recipient, but the donor might be subject of US gift taxes depending on the value of the gift.

Customer:

I guess what I am trying to find out is if I will be double taxed in the situation where the Mex corp sells the property and then I take the money from the sale and bring back to the US. My understanding from a US accountant was if I sold my shares of stock in the mexican corporation to the buyer of the property( stock sale vs land sale) I would only pay the capital gains tax once , that in Mexico. If I did a land sale with the mex corp, the Mex corp would pay capital gains and then I would have to pay capital gains again in the US if I repatriated the money to the US.

Lev :

We need to separate YOUR tax liability and the tax liability of the Mexican corporation.
You and the corporation are separate taxing entities.
Corporations pays its own taxes on corporate income - and you pay your own taxes on your income.
You are correct - in case of the corporation - there is double taxation.

Customer:

So, what are my options in selling the property to avoid paying double taxes?

Lev :

In case of the corporation - there is no options if you want proceeds to be distributed to you.
If you want assets to keep in the corporation - as long as they are not distributed - income will be taxed to the corporation only.

Lev :

The issue is - as soon as proceeds are distributed to you or are considered as distributed to you - that becomes your income. Regardless how you use the money.

Customer:

Can the proceeds of the sale of the mexican corporation go straight to a Nevada corporation. How would that work in terms of taxes?

Lev :

If Mexican corporation will own shares of a Nevada corporation - and proceeds are NOT distributed to you - that is NOT your taxable income.
If you own shares of a Nevada corporation - that will be treated as distribution constructively received by you personally - and will be your income.

Customer:

How does the IRS verify that capital gains were paid in Mexico?

Lev :

Generally - you report that on your tax return - that is how the IRS receives information. If the IRS disagrees or needs clarification - they ask you to provide supporting documents.

Lev and 2 other Tax Specialists are ready to help you