I plan to bring the money over here and use it to either buy a new house or pay tuition.

I'm sorry, the website didn't post my revised question.

I own a house in Vietnam and wish to sell it. It is worth about 130k. If I sell it and have the money sent over here to the US, do I have to pay taxes? If so, are there things I can do to shield it from taxes?

Are you a Vietnamese citizen, or a U.S. citizen, or a resident alien of the U.S.?

We need specifics about your visa status and nationality before we can post a coherent answer.

I was born in Vietnam but I have been naturalized and am now an US citizen.

Okay, you WILL have to report the sale of the home on Schedule D and pay capital gains taxes on the profit (the difference between what you paid for, plus cost of improvements over the years and what you got for it when you sold it).

Now, was this house your primary home, and did you live in it as your primary home for TWO of the past FIVE years?

I have lived in the US for 16 years. This house is located in vietnam and my grandmother is living in it. My dad received the land from my grandfather and built it up. We did not sell the house when we immigrated to the US. We plan on selling it soon.

On your return, you must report your world wide income. If you paid taxes in the foreign country, you will claim credit for taxes paid in the foreign country by filing Form 1116.

Another filing requirement may be Form TD F 90-22.1. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

Is it possible to claim it as an inheritance since it's ownership is currently under my grandmother? Can we work it out as an inheritance and how will taxes work in that case?

So, let me see if I have this right; you own nothing but want to somehow sell what you do not own and keep the proceeds. Is that correct?

No. When my family immigrated over here, my dad didn't want to sell his house because he wanted his mom to have a place to live. He transferred it over to her and let her continue living in it. We still consider it ours. However, she is nearing her final days and can no longer live alone. My grandmother is giving the house back after basically "borrowing" it for 15 years. We are going to sell it, and the money is going to us.
Don't make it seem negative. It is not an act of selling something we don't own. My dad let his mother live in his house, which meant we had no start-up money when we first immigrated to the US. If we would've sold that house back in 93', we would've had money to rent a place for a few months until my parents found jobs. However, because my dad felt that he owed it to her not to kick her out and our family had stay with generous people in the Vietnamese community for a few months until things got sorted out.

It was an initial gift to your grandmother from your father, then another gift from her back to you. No taxes are due on either transaction because the giver, in both cases, was NOT a U.S. resident at the time.

You WILL have to pay capital gains taxes when the sale is made. Your basis will be what your FATHER paid for the house.

You haven't dealt with the critical question of currency exchange rate movements. There are two completely different ways of computing the capital gain. One is to subtract the purchase price from the selling price, both in Vietnamese currency, giving the profit in Vietnamese currency, and then convert that profit at the rate of exchange applicable on the day of the sale. The other is to convert the purchase price into US dollars on the date of purchase and then convert the selling price into US dollars at the date of sale, and take the difference of those two numbers. These different methods yield very different tax liabilities. If the US dollar has fallen relative to the Vietnamese currency, then the tax bill using method 2 would be much larger. Method 2 is the one used in Australia for computing capital gains on foreign assets, and often results in a tax paid on a loss (as measured in the local currency), but does anyone know the currency conversion procedure in the US?