Inherited property overseas

[Kodak178]

I am wanting to purchase a property in New Zealand from a former New Zealander who is now a US citizen as at 1 year ago. He inherited a property 15 years ago along with another family member who is a NZ resident.
Until he became a US resident they had rented the property. Now the property is untenanted and he wishes to sell to me...but...he is stuck with US capital gains tax I understand if he sells this.

It doesn't seem logical that as a NZer he was able to sell the property with no capital gains tax (its not here in NZ), but because he has recently become a resident he believes he has to pay 30% tax on the capital gain of the property.

I cannot understand how the US government can make a capital gains tax claim on property that has been owned for more than 15 years, owned prior to residency, and; the funds from the sale of the property would remain in NZ

Any help in clarifying the rules around this would be greatly appreciated. Has he received incorrect advice ? It seems grossly unfair that had he sold this prior to becoming a resident there would have been no tax problem?

much appreciated

 

[TigerD]

I am wanting to purchase a property in New Zealand from a former New Zealander who is now a US citizen as at 1 year ago. He inherited a property 15 years ago along with another family member who is a NZ resident.
Until he became a US resident they had rented the property. Now the property is untenanted and he wishes to sell to me...but...he is stuck with US capital gains tax I understand if he sells this.

It doesn't seem logical that as a NZer he was able to sell the property with no capital gains tax (its not here in NZ), but because he has recently become a resident he believes he has to pay 30% tax on the capital gain of the property.

I cannot understand how the US government can make a capital gains tax claim on property that has been owned for more than 15 years, owned prior to residency, and; the funds from the sale of the property would remain in NZ

Any help in clarifying the rules around this would be greatly appreciated. Has he received incorrect advice ? It seems grossly unfair that had he sold this prior to becoming a resident there would have been no tax problem?

much appreciated

Not your problem. But you should seek counsel in NZ.

TD

 

[LdiJ]

Not your problem. But you should seek counsel in NZ.

TD

Counsel in NZ would be worthless in this instance since we are talking about US taxes.

 

[LdiJ]

I am wanting to purchase a property in New Zealand from a former New Zealander who is now a US citizen as at 1 year ago. He inherited a property 15 years ago along with another family member who is a NZ resident.
Until he became a US resident they had rented the property. Now the property is untenanted and he wishes to sell to me...but...he is stuck with US capital gains tax I understand if he sells this.

It doesn't seem logical that as a NZer he was able to sell the property with no capital gains tax (its not here in NZ), but because he has recently become a resident he believes he has to pay 30% tax on the capital gain of the property.

I cannot understand how the US government can make a capital gains tax claim on property that has been owned for more than 15 years, owned prior to residency, and; the funds from the sale of the property would remain in NZ

Any help in clarifying the rules around this would be greatly appreciated. Has he received incorrect advice ? It seems grossly unfair that had he sold this prior to becoming a resident there would have been no tax problem?

much appreciated

US citizens and permanent residents must pay tax on their worldwide income, but they get a credit for taxes paid to other countries.

The US federal capital gains tax rate is not 30%.

For married couples with income of 72,500 or less the capital gains tax rate is 0%

For married couples with income of 72,500 to 250,000 the capital gains tax rate is 15%

For married couples with income of 250,000 to 450,000 the capital gains tax rate is 15% plus a medicare surcharge of 3.8% for a total of 18.5%

For married couples with income over 450,000 the capital gains tax rate is 20% plus a medicare surcharge of 3.8%

In addition, the IRS rules for determining basis would apply here. Therefore his basis in the property would be the full value of the property as of the date he inherited it. The capital gain/loss would be the difference between his basis and the net sales proceeds (after selling expenses). He will only pay capital gains tax if there is an actual capital gain.

 

[davew128]

I cannot understand how the US government can make a capital gains tax claim on property that has been owned for more than 15 years, owned prior to residency, and; the funds from the sale of the property would remain in NZ

Because the US tax code subjects its citizens to tax on income on a worldwide basis and has since 1913...