I am in a very bad situation that I just realized.

My father in law in Sri Lanka decided to build a house and give it to my wife, so we said OK.

Now this property is located in Sri Lanka as well, my father in law is not a US person(he has no visa, never been to USA).

My father in law instead of buying the property and then doing a gift deed to my wife, he did a sale deed between my wife and the seller when my wife alone went to Sri Lanka.

My father in law still paid the seller and my wife did not pay anything, she has no money.

Also the sale deed says my wife bought it for $20k. But my father in law actually paid $60k for it.

Now I am afraid that if we have to sell it, our cost basis will be $20k and even
On selling at breakeven we will be still on the hook for $40k profit.

Also, IRS may think my wife had $20k in a bank acct in Sri Lanka with which she bought this property and may say she was supposed to have filed a FBAR, how can she file one when she did not have one ?

Please help me in fixing this situation.Please!!

There are no FBAR issues here because there is no bank account with your wife's name on it.

You are probably
Stuck with the 40K in phantom capital gains.

Thank you !

Glad to help!