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I have a question about any taxes owed on foreign real

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Hello, I have a question...
Hello, I have a question about any taxes owed on foreign real estate investments. I'm a U.S. citizen and currently own a foreign property in Vietnam that I bought over a year ago. However, since I'm not a Vietnamese citizen, the property was never in my own name, but rather in my property manager's name (a Vietnamese local). My property manager and I have been in discussions to sell the house. Before I do that, I would like to know what the tax implications of any income earned are? If I spent $45,000 on the property and expect to sell for $90,000, what is the most advantageous way to conduct this sale so that I have little to no tax liability for income earned on this foreign investment? Also, what is the trigger for assessing taxes on this investment, if any? Are there even any taxes owed, since the income was earned abroad? Thank you, DK
Submitted: 7 months ago.Category: Tax
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Answered in 6 minutes by:
11/20/2017
Tax Professional: Barbara, Enrolled Agent replied 7 months ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,167
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

As a U.S. citizen you are required to report and pay tax on your worldwide income.

The sale of a foreign property will be subject to capital gains tax in the U.S. You will pay capital gains tax on the DIFFERENCE between your basis (what you paid) PLUS improvements and the selling price.

The only issue is that you mention that you do not own the property and it is not in your name. Have you been reporting the income and expenses on your U.S. tax return?

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Customer reply replied 7 months ago
Hi Barbara, My property manager was renovating the house with his money and as such, I have not paid for any improvements on the property. Also, we haven't yet made income, since it hasn't been rented out yet. How much would I owe in taxes and when, if I sell it for $45,000 more than what I put into it? Does the money need to come back into the U.S. to trigger capital gains taxes?
Customer reply replied 7 months ago
Also, to address your last question explicitly. I haven't yet reported anything on my taxes because there's been nothing to report and the property isn't in my name.
Tax Professional: Barbara, Enrolled Agent replied 7 months ago

The money does not need to come back to the U.S. to trigger capital gains tax.

As I mentioned, as I U.S. citizen is is YOUR RESPONSIBILITY to report and pay tax on your worldwide income.

But, there is an issue that you do not own the property and it is not in your name.

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Customer reply replied 7 months ago
What is the specific issue?
Tax Professional: Barbara, Enrolled Agent replied 7 months ago

How can you report the sale of something you do not own?

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Customer reply replied 7 months ago
Well, that seems to be a great legal question. Despite the fact that I bought the house with my funds, you seem to be suggesting that since my name isn't on the deed, it doesn't qualify as my property. In this case, it seems that any income earned doesn't qualify as capital gains. Would this instead qualify as having loaned the property manager $45,000 and now receiving it back with interest?
Tax Professional: Barbara, Enrolled Agent replied 7 months ago

If you treat it as a loan, you would have to report the interest and be taxed at your ordinary income tax rate, which is much less favorable than the capital gains tax rate.

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Tax Professional: Barbara, Enrolled Agent replied 7 months ago

Do you have any paperwork/documentation that would prove that you own the property?

Perhaps an agreement between you and your property manager that explains that you cannot be listed as the owner because you are not a Vietnamese citizen and so his name is ***** *****?

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Tax Professional: Barbara, Enrolled Agent replied 7 months ago

Just following up with you to see if you have any other questions. If so, please let me know so I can continue to assist you.

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