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    austinjean6's Avatar
    austinjean6 Posts: 3, Reputation: 1
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    #1

    Jun 11, 2013, 07:10 PM
    Capital Gains on Property Transferred Overseas
    My mother is a UK citizen living all her life in the UK. She wants to transfer one of the 2 properties she owns to me. The property in the UK is worth about $450K current value and she acquired it 15 years ago as part of an inheritance (its valuation then was $200K ) she has spent some money to refurbish over the years but I am not sure how good those records are. If she transferred the house a realized gain would occur in the UK and we would have to pay approx $50K UK tax.I am a US naturalized citizen with every intention of remaining in the US. I have owned lived in a property in NY with my wife for 10 years..

    My question is:
    - Is the gift subject to any immediate US tax ?
    - What tax would be due if I sold it in a few years without living in it and what would be the approx tax sum if I am a higher earning tax payer?
    - If I lived in the property for 2 years+ prior to selling (and disposed of my US house after 3 years) what capital gains would be due ?
    - if I rented the house out for a few years as a summer or full time rental.. what would the tax situation be upon disposal?
    - What would I have to declare (form wise) to the IR at each step ?

    Many thanks for any help /advice anybody can give. If you also know of a good way to locate a reputable tax attorney with experience in these matters would appreciate your advice as well.

    RJ, NY
    MukatA's Avatar
    MukatA Posts: 7,110, Reputation: 176
    Tax Expert
     
    #2

    Jun 12, 2013, 05:50 AM
    Your mother is not a resident or citizen of the U.S. So she does not pay any U.S. tax.
    In U.S. the receiver of any gift does not pay any tax. So all the gifts that you receive are not taxable. This is ture even if you receive gift from a U.S. citizen or resident.
    However, you will have to file form 3520 to report the gift.
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
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    #3

    Jun 12, 2013, 05:55 AM
    Quote Originally Posted by austinjean6
    My question is:
    - Is the gift subject to any immediate US tax ?
    No.

    Quote Originally Posted by austinjean6
    What tax would be due if I sold it in a few years without living in it and what would be the approx tax sum if I am a higher earning tax payer?
    The cost basis you use for a property received as a gift is usually the same as the cost basis of the original owner - in this case $200K (it gets a bit more complicated if you sell for less than the FMV on the day the gift is made to you). So upon sale you would pay capital gains tax on the difference between the proceeds you realize and the tax cost basis. Depending on your income level capital gains tax will most likely be 20%.

    Quote Originally Posted by austinjean6
    - If I lived in the property for 2 years+ prior to selling (and disposed of my US house after 3 years) what capital gains would be due ?
    If it is your principal residence for at least 2 of the previous 5 years then up to $250K of capital gain is excluded ($500K if married filing jointly). But it gets a bit complicated if theer us mixed use of the property p i.e. if you use the home as a primary residence for some of the time as a rental for other times.

    Quote Originally Posted by austinjean6
    if I rented the house out for a few years as a summer or full time rental .. what would the tax situation be upon disposal?
    Again you would owe capital gains, and if you took any depreciation on the property as a business during the years you own it then your tax cost basis is reduced by that amount.
    Quote Originally Posted by austinjean6
    What would I have to declare (form wise) to the IR at each step ?
    If you don't rent it out, then you have nothing to file until you sell, and then you report the sale on Schedule D. If you do rent it out then it's a business and you have Schedule C to file each year, and again Schedule D when you sell.
    austinjean6's Avatar
    austinjean6 Posts: 3, Reputation: 1
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    #4

    Jun 12, 2013, 06:07 AM
    Thanks.. Is the cost to me for capital gains 450k (value at transfer) or the vale when my mother inherited it 200k? The uk government will assess the value as 450 k and make us pay 50 k upon transfer.. Does any part of that count to offset any us tax whe I sell it ? Thanks again
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
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    #5

    Jun 12, 2013, 06:17 AM
    Someone better versed than me in international tax issues would have to confirm, but I believe you can consider the $50K in taxes paid to the UK as an adder to your cost basis, making it $200K + $50K = $250K.

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