Foreign Inheritance

[Scrilly]

Foreign Deposit

What is the name of your state (only U.S. law)?

Hello, I reside in Texas. My wife recently sold a piece of property in Korea and divided the money with her sisters (The property was purchased with inherited money from her deceased mother.) My wife's portion of the money, roughly 50,000 dollars, was transferred to our US account. If it matters, my wife owned the property before we were married.

The question: How do I explain this money to the IRS? How will it be taxed?

Thanks for any help.

 

[LdiJ]

What is the name of your state (only U.S. law)?

Hello, I reside in Texas. My wife recently sold a piece of property in Korea and divided the money with her sisters (The property was purchased with inherited money from her deceased mother.) My wife's portion of the money, roughly 50,000 dollars, was transferred to our US account. If it matters, my wife owned the property before we were married.

The question: How do I explain this money to the IRS? How will it be taxed?

Thanks for any help.

You are going to need the help of a tax professional this year. If your wife owned the property jointly with her sisters then she is right at the level where she should have been reporting the foreign asset annually. If she owned the asset separately and just gifted her sisters money from the sale then its far more complex.

As far as income tax is concerned its relatively simple. Its a sale of a capital asset and you pay capital gains tax on the difference between her basis (what she purchased it for plus major improvements) and the sales proceeds (selling price minus selling costs).

Again, what could be your problem is if you should have been reporting the foreign asset annually and did not. The penalties for not reporting foreign assets are unfortunately, severe. However, there is an amnesty program available for people who did not do so intentionally. However you have to fess up and apply for the program rather than letting the IRS "catch" you.

Therefore you will need a tax professional experience in foreign asset reporting who can review everything and determine whether or not the asset was over or under the reporting requirement, and help you apply for amnesty if it was over. Luckily, you sound like someone who would be a slam dunk for amnesty so its really all going to be a technicality for you, but its something that has to be done right.

If you want to do some research on your own, in the meantime, do a google search for "foreign asset reporting" and read up on the issue.

 

[Scrilly]

You are going to need the help of a tax professional this year. If your wife owned the property jointly with her sisters then she is right at the level where she should have been reporting the foreign asset annually. If she owned the asset separately and just gifted her sisters money from the sale then its far more complex.

As far as income tax is concerned its relatively simple. Its a sale of a capital asset and you pay capital gains tax on the difference between her basis (what she purchased it for plus major improvements) and the sales proceeds (selling price minus selling costs).

Again, what could be your problem is if you should have been reporting the foreign asset annually and did not. The penalties for not reporting foreign assets are unfortunately, severe. However, there is an amnesty program available for people who did not do so intentionally. However you have to fess up and apply for the program rather than letting the IRS "catch" you.

Therefore you will need a tax professional experience in foreign asset reporting who can review everything and determine whether or not the asset was over or under the reporting requirement, and help you apply for amnesty if it was over. Luckily, you sound like someone who would be a slam dunk for amnesty so its really all going to be a technicality for you, but its something that has to be done right.

If you want to do some research on your own, in the meantime, do a google search for "foreign asset reporting" and read up on the issue.

Thanks for your response. I will definitely look into the amnesty program. I failed to mention in the original posting that my wife is not a US citizen. However, she does hold a green card. I guess it doesn't matter. The sale of the property was for a significant loss. However, my wife was pressured to report the sale for much more than it actually was and now it appears that there was a gain. That's Korea for you. The property was in my wife's name only and the proceeds were gifted (in Korea) to her sisters.

Is there not an allowance that allows foreigners to transfer foreign earned money to a family account? How do people avoid being taxed when they first move to the US?

Thanks again.

 

[LdiJ]

Thanks for your response. I will definitely look into the amnesty program. I failed to mention in the original posting that my wife is not a US citizen. However, she does hold a green card. I guess it doesn't matter. The sale of the property was for a significant loss. However, my wife was pressured to report the sale for much more than it actually was and now it appears that there was a gain. That's Korea for you. The property was in my wife's name only and the proceeds were gifted (in Korea) to her sisters.

Is there not an allowance that allows foreigners to transfer foreign earned money to a family account? How do people avoid being taxed when they first move to the US?

Thanks again.

Again, get yourself to a tax professional who is experienced with foreign assets.

People can transfer millions of dollars to the US without tax consequences. Its not the transfer of money that creates a tax consequence or a reporting consequence, its the details of the transaction.

 

[Scrilly]

Again, get yourself to a tax professional who is experienced with foreign assets.

People can transfer millions of dollars to the US without tax consequences. Its not the transfer of money that creates a tax consequence or a reporting consequence, its the details of the transaction.

Thanks for your time. I appreciate it!

 

[davew128]

LdiJ, there is no foreign asset reporting regarding the real estate. Perhaps with regards to a Korean bank account used to facilitate the sales proceeds, but not on the real estate.

 

[LdiJ]

LdiJ, there is no foreign asset reporting regarding the real estate. Perhaps with regards to a Korean bank account used to facilitate the sales proceeds, but not on the real estate.

I was going off of memory, which is why I emphasized that the OP needed to consult an expert in that area. I have an contact who is an expert in that area that I refer people to when the need arises. Now that you mention it, that reminds me of a scenario that she talked to me about. She had a client who sold a piece of real estate in Australia, who did not know about foreign asset reporting and who did not know to ask for amnesty. That client got penalized for not reporting a foreign bank account that was open for less than 48 hours...and was just to facilitate the transfer of the proceeds of that sale.