[RoomyRaghina]

My wife has inherited shares from her deceased parents lived in a foreign country. Currently the shares are invested in a foreign stock market but could be liquidated and the proceeds could be transferred to my US Bank via official channels from a foreign bank. My question is what are IRS and Tax liabilities to my wife if she receives the funds in US. Does she has and Federal or State tax liabilities, Inheritance Tax, Wealthy Tax, or any other taxes she will be liable to?

[wnhough]

QUOTE," . . . what are IRS and Tax liabilities to my wife if she receives the funds in US. . ."---No estate tax is imposed on your wife's overseas inheritance. No Federal estate tax is imposed on the inheritance received overseas in most all states. However, your wife may need to file info. Return to the IRS by filing IRS form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.If she, as a US person, received during the current tax year either:
More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests, or etc.
The form is NOT to impose tax on it but just for info. Return level, because Ur wife DOESN'T pay any tax on her inheritance/ gifts from abroad.
"Currently the shares are invested in a foreign stock market but could be liquidated and the proceeds could be transferred to my US Bank via official channels from a foreign bank. "--As the money comes into the US via wire transfer, your bank will repost it to the Fed. That doesn't mean to pay any form of taxes on the money transferred into the US from overseas.Federal law requires that all banks report any cash deposits made in excess of $10,000 in the hopes of discouraging money laundering, rather than tax evasion. "wires" from abroad require the same information for the same reasons as mentioned above.
"Does she has and Federal or State tax liabilities, Inheritance Tax, Wealthy Tax, or any other taxes she will be liable to? "--No.; as she doesn't pay any form of taxes on it, she can't take any tax credits on the estate taxes paid overseas, either.

[ebaines]

There are a few states that do have inheritance taxes, so be sure to investigate that. What state do you live in?

[AtlantaTaxExpert]

Assuming your wife is either a resident alien, green card holder or U.S. citizen, ALL world-wide income is subject to income taxes.

The basis for the stock she inherited is the Fair Market Value of the stock at the date of her parents' death. When she sells the stock, she will have to report that sale using Schedule D and show either a gain or loss. Note that the tax is paid on any gain experience since her parents death, NOT on the FMV at the date of her parents' death(s).

The gain is considered a long-term gain regardless of when the stock is sold, and, under current tax law, will be taxed a either 5% or 15%. These rather low tax rates are schedule to END soon, so she may want to consider selling the inherited stock THIS YEAR to lock in the gains (and the LOW tax rates).

The loss is considered a long-term loss and can be used to offset other capital gains. If there are no capital gains to offset, the loss can be used to offset other income up to $3,000 per year on joint returns. If the loss exceeds $3,000, the loss is carried forward to future years until it is used up, or until your wife dies, whichever comes first.

[IntlTax]

ATE, where is the rule that says that gain is considered a long-term gain regardless of when the stock is sold?

[ebaines]

ATE, where is the rule that says that gain is considered a long-term gain regardless of when the stock is sold?

See here:
Publication 544 (2009), Sales and Other Dispositions of Assets

Under "Long and Short Term":
Inherited property. If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it.

[wnhough]

ATE, thanks for reminding me of the capital gain tax issue! Anyway, I have questions;1) can they deduct capital gain taxes paid overseas when liquidating the capital assets overseas? 2) Does the IRS also consider foreign currency value changes that possibly alter real vaue of capital gain or loss finally recognized in the US in $US value?
And also, LT capital gain rates; 0% for those whose tax brackets r 10~15% and 15% for the marginal tax rate over 15%, but in 2011 will change to 10% for the tax bracket of 10% and 15% and 20% for the marginal ax rate over 15%.

Also, ebains,
QUOTE," Under "Long and Short Term":
Inherited property. If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it."---Thanks for this info. Tip!!

[IntlTax]

Thanks

[MukatA]

For any property inherited in 2010, the cost basis is not the step-up cost basis. It is the cost basis of the deceased person.

[AtlantaTaxExpert]

wnhough:

If taxes are paid on the sale of stocks to a foreign government, you can claim the Foreign Tax Credit on those foreign taxes under the "passive income" category.

MukatA:

I believe you are correct, but please provide the IRC citation or other pertinent reference.

[RoomyRaghina]

There are a few states that do have inheritance taxes, so be sure to investigate that. What state do you live in?

California

[wnhough]

Dear AtlantaTaxExpert,
I clearly understand what u mean. So in this particular situation, RoomyReghina's spouse is subject to both state and Federal level CG taxes( whether it b either STCG with ordinary gain tax rate,or LTCG with the regular lower rates(either 0% or 15%) but is not subject to Estate taxes.
Good deal~~~

[wnhough]

MukaTa,
Please visit ; Publication 514 (2009), Foreign Tax Credit for Individuals
I believe that the couple's taxes paid on the CG overseas MUST be deducted as an itemized deduction on their SCh A if the couple claims itemized deduction and the gain is treated as LTCG.
If not, if the gain be treated as STCG, then they MUST b able to deduct it as their business operating expenses, directly reduce their AGI...