My question involves taxation on inherited property abroad. My grandfather, a non-US national, left me a house in India several years ago. I sold the house many years later, presumably for a gain from what the house was worth at the time of death. The proceeds were invested in a tax-free municipal bond in India, and I now wish to bring the money back here. All taxes have been paid in India, no taxes in the US, and can provide full documentation. I am a US citizen. What do I owe? I read on some website that as long as the person leaving me the house is a non-US national, the IRS can't tax me on the house. I spoke to some rep at the IRS and he didn't seem to think that was the case (but he didn't seem very knowledgeable though so I don't trust him on this). Any ideas? Thanks in advance.

Ncviswan:

The NUG (normally/usually/generally) rule is that U.S. citizens are taxed on ALL sources of income world-wide, and that is what the IRS representative was probably thinking about when he considered your case.

There was no taxes due on the inheritance itself, as your father's estate was wholly in India. In my opinion, once you owned the property, you would have been liable for the capital gains taxes when you sold the property.

Further, while you invested the money in a tax-free municipal bond, the fact that this bond was in India probably did not make it tax free for U.S. tax purposes.

Finally, taxes were paid in India, so that probably offset at least some of the U.S. taxes due..

Bottom Line: Get immediate professional help from a tax professional who has experience with taxes due on foreign-based assets. I expect that some amendments to past tax returns will be required to set thing straight with the IRS.

Ncviswan:

The NUG (normally/usually/generally) rule is that U.S. citizens are taxed on ALL sources of income world-wide, and that is what the IRS representative was probably thinking about when he considered your case.

There was no taxes due on the inheritance itself, as your father's estate was wholly in India. IMHO, once you owned the property, you would have been liable for the capital gains taxes when you sold the property.

Further, while you invested the money in a tax-free municipal bond, the fact that this bond was in India probably did not make it tax free for U.S. tax purposes.

Finally, taxes were paid in India, so that probably offset at least some of the U.S. taxes due..

Bottom Line: Get immediate professional help from a tax professional who has experience with taxes due on foreign-based assets. I expect that some amendments to past tax returns will be required to set thing straight with the IRS.


I have a similar situation except foreign assets were left by a US citizen. Would the nationality of the donor affect my tax liability when I bring the assets to the US or is that a matter for the estate? Is it considered a gift?

If there are any estate taxes due, the estate will file them.

Once title is transferred, you probably have little, if any, tax liability until you sold the asset, at which time capital gains would be due if you were present in the U.S. when they were sold (if you are a non-resident alien).

If you are a resident alien or U.S. citizen, then all world-wide income is subject to U.S. income taxes.