4

If my non-US parent gives an apartment in my native country to me as a gift, vs I inherit this later, and then in the far future I decide to sell that apartment, when doing my US taxes at that time will my cost basis in both cases be zero for that sale? Which will mean I will suddenly owe a lot of tax to US for something my non-US parent had bought in my native country with his non-US income?

I am naturalized US citizen living in my native country now but I guess it doesn't matter where I live.

1 Answer 1

8

It will not be zero for either case.

For gifts the basis is determined based on the donor's basis, with some adjustments. See details at the IRS page on basis for gifted property.

For inherited property the basis is determined based on its fair market value (FMV) at the time of the donor's passing. See details at the IRS page on basis for inherited property.

You are right, it doesn't matter where you live when you're a US citizen. But, you do get to use the foreign tax credit on taxes paid locally, if any.

8
  • Ok thanks a lot. And I checked the links but couldn't understand something because they seem similar. Simply which situation would give a better/higher cost basis if I decided to sell it in the future?
    – upstream
    Commented May 13 at 7:00
  • Also when/if I sell this later I would pay an ownership change tax in my native country. That could be deducted from my US tax obligation from the sale at that time right?
    – upstream
    Commented May 13 at 7:15
  • @upstream it's hard to tell which one is better in a particular situation, but generally appreciating assets are better to be inherited (tax-wise) since you get stepped up basis. As to ownership change tax - you'll need to determine what kind of tax it is to figure out how it should be treated on US taxes.
    – littleadv
    Commented May 13 at 8:19
  • Ok . And how about the fair market value. Now we got a FMV from municipality here, which is also officially accepted everywhere including when determining the tax to pay to state here during ownership change.... but that value municipality gave us is not even close to real FMV if i would sell it it is about half of real fmv. So for my US reporting purposes is that FMV from municipality also ok or i must obtain it in another way? Because if i use that it remains below 100K and i don't even file 3520 now. But if i use the real market value it is over 100K i believe.
    – upstream
    Commented May 13 at 8:28
  • 1
    @upstream the IRS knows perfectly well that the property tax assessments are nowhere near the actual market values. Generally, you'd get an appraisal.
    – littleadv
    Commented May 13 at 9:04

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .