Tax implications of selling a property abroad

What is the name of your state? DC

I own a property outside of the US that I would like to sell. The property was originally owned by my parents and was transferred to my name a few year before my father passed away. As there was no inheritance for my sister, mother and myself, I'd like to somehow divide the profits up equally to each.

What is the U.S. tax implication of selling that property. I'm assuming I will most likely have to pay taxes on the money here in the U.S. How would I go about giving them the money without them having to pay taxes again?

Thanks in advance for your advice.

[abezon]

1. You report the gains from the sale on Schedule D & pay taxes on the entire profit, then gift some to your family members & file a gift tax return (don't pay anything; just have to file it). You will also need to file an income tax return in the country where the land is located. You can claim a foreign tax credit for the taxes you pay the other country. Your income will almost certainly spike & you'll pay capital gains taxes at 15%.

2. Give them part of the property now, then all of you sell it. Each person will have to file a foreign tax return, and report their share of the profits on their own return & claim their own foreign tax credit. You still have to file a gift tax return. Everyone's income goes up, but some people may stay down in the 15% tax bracket & will pay capital gains taxes at 5%.

3. Some combination of 1 & 2 where not everyone is put on the title before sale.

Option 2/3 will keep your income from spiking, but the family may actually clear more money using option 1, depending on how the foreign tax credits work out & each person's income.

The only way to determine the best method is to see a tax pro & take everyone's information along. You'll also need to determine how much you'll pay in taxes to the foreign country under the various options before visiting the US tax pro. If the land's in Canada I can help you figure out the Canadian taxes & treaty stuff. Otherwise, check the IRS web site for foreign tax treaties & find a foreign tax pro.