[CaroCary]

Hi,
My former husband and I bought a property in Chile about 17 years ago. We were temporary residents there at the time. Since that we moved several times, divorced, I got married again and am a legal resident of the US in NC.
Now are planning to sell that property in Chile and transfer the money to the US to buy a house (I am currently renting), but to make sure that the property belongs to my children (and not to my new husband's children from a previous marriage) I am planning to open a trust with my 2 kids as the beneficiaries.
What is the best process to pay the least amount of taxes on that money when bringing it to the US. The total amount is about 175K.
Thank you in advance for your help!

[ebaines]

So as of right now you and your ex are joint owners of this property, correct? And you are selling it as joint owners?

When you sell your half as a US resident you will report your portion of the sale as a capital gain on Schedule D of your tax return. Assuming you and your ex split the proceeds 50/50 - you report half the proceeds, use half the tax basis as the cost, and pay capital gains tax on the difference.

I assume that there will also be Chilean tax consequences from this sale - I don't know what those are but you can take a credit on your US tax return for foreign taxes paid (i.e. to Chile).

There are no tax consequences for bringing the money from Chile to the US.

I don't understand what you mean by "to make sure that the property belongs to my children." It doesn't - it belongs to you, right? Or do you mean that you plan to gift your portion of the ownership of the property to your children before you sell it on their behalf? It would help for you to give a little more detail about what you mean.

[CaroCary]

Hi Ebaines, The property in Chile is owned by my ex and I jointly, but it was always meant to be 'something we will inherit to our kids'. So, we will sell it jointly, but I get the 100% of the proceeds. Then the house I will buy in the US with that 100% will be owned by a trust whose trustees are my children.

What capital gains shall I report on the whole? I didn't understand that first part of your explanation. The rest is perfectly clear, thank you. Anything related to the price in Chile? How much we paid 17 years ago?

[AtlantaTaxExpert]

Setting up that kind of trust requires the advice of a competent tax advisor with estate planning experirnce. This is a face-to-face transaction, so query the local Yellow Pages for estate planners. Take your time and interview several estate planners to make sure they have the requisite training and experience.

Good Luck!

[ebaines]

Regarding the sale of the house in Chile - since you are joint owners with a person who is not your spouse, my take is that when it sells you get half the proceeds and your ex gets the other half. If he has agreed to give you his half of the proceeds then that's what it is - a gift of cash from him to you. Gifts are not taxable to the receiver, so from a tax perspective there is no consequence for your from that gift. As to how to report the sale: on Schedule D you will indicate the date when you bought the property, half of its cost basis (which is equal to the original purchase price plus the costs of any capital improvements you may have made over the years), the selling date and half of the proceeds from the sale. (As noted earlier since you are a joint owner you report only half of the actual values - your ex would presumably report the other half on his tax return.) The difference between your reported proceeds and your cost basis is considered to be a capital gain, and you will be taxed at capital gains rates (15% most likely). However, if you actually have a loss on the sale you report the gain as $0 and not a negative number because you can't take a loss on the sale of personal property.

Note that under this technique if your ex is required to file a US tax return he reports the same amount of capital gain as you, and would therefore have to pay capital gain tax just like you do. In other words even though he is gifting you his proceeds he still owes tax on his gain. I suppose he would deduct the amount of tax he has to pay from the cash gift amount he makes to you. But my advice to him would be that rather than sell the property jointly with you he'd be better off gifting you his half of the peoperty before it sells - that way the title gets put in your name only and he is not responsible for any taxes on the sale. But this is all from a US tax perspective and depending on his country of residence he may find a different strategy works better.