Estate tax exemption is only 60k for US citizen but not residing in USA?

[curiousv]

WA state
Even though someone is US citizen but not residing/domicile in USA ...rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same correct?
I am asking because I read somewhere that for non residents the estate tax exemption is only 60k ...
Non resident means people who are foreigners and never got a green card or US citizenship? or it means all the people not residing in the USA currently?
Also, Foreign Investment Real Property Tax Act does not apply to people who are US citizens (irrelevant whether they are currently reside in USA or not correct?)
Also for US citizens but no residing in USA - the proceeds from selling home - are subject to income tax? or just capital gains tax?
If (US citizen but not residing in USA) wants to sell a property ...can he/she give power of attorney to a family member from overseas?...will title companies accept that power of attorney while closing?
What other taxes or consequences apply when US citizen (but non resident) sells US property

 

[FlyingRon]

You understand wrong. The lower limit estate/gift tax exemption applies only to those who are neither citizens nor legally domiciled in the US.
Similarly, FIRPTA doesn't apply to US citizens. FIRPTA isn't really a tax, but a procedure (namely mandatory withholding) to make sure tax on US transactions is paid.

Selling property in the US by US citizens is the same whether you are residing here or not. You owe capital gains. Since you aren't residing in it as a principal residence, you are obviously not eligible for the principal residence exclusion. The capital gains rate is determined based on whether you held the property for a year or not, and what your overall income is for that year (including the gain).

 

[curiousv]

You understand wrong. The lower limit estate/gift tax exemption applies only to those who are neither citizens nor legally domiciled in the US.
Similarly, FIRPTA doesn't apply to US citizens. FIRPTA isn't really a tax, but a procedure (namely mandatory withholding) to make sure tax on US transactions is paid.

Selling property in the US by US citizens is the same whether you are residing here or not. You owe capital gains. Since you aren't residing in it as a principal residence, you are obviously not eligible for the principal residence exclusion. The capital gains rate is determined based on whether you held the property for a year or not, and what your overall income is for that year (including the gain).

Wow..thanks for clarification.
So for example if a this person received property as a gift ..their cost basis would be donor's cost basis correct?
So gain tax will be applied on difference between selling price minus donor's cost basis correct?

Are you sure ...capital gains is included in the income ..for that year...
lets say this person (US citizen but not residing in USA) is getting this property as a gift with holding period of 10 years a gift as well...and decides to sell in like 6 months...and this person has only only 10k income (which is unearned income because he is retired) so technically capital gains tax should be zero but you are saying capital gains is added to income so lets say capital gains is 100k so her total income would be 110k? and in that case she has to pay 15% capital gains tax ? I am really confused...

 

[Taxing Matters]

First, the income tax rules for U.S. citizens are the same whether they are living in the U.S. or in some foreign country except that the citizen living in some other country may qualify for a few tax breaks that those living in the U.S. would not get. As it relates to the sale of real estate located in the U.S. the U.S. citizen is taxed the same on that regardless of where the citizen lives. Similarly, the federal gift and estate tax rules are the same for U.S. citizens regardless of where they live. Note that gift tax only applies to the person GIVING the gift, not the person receiving the gift.

Are you sure ...capital gains is included in the income ..for that year...
lets say this person (US citizen but not residing in USA) is getting this property as a gift with holding period of 10 years a gift as well...and decides to sell in like 6 months...and this person has only only 10k income (which is unearned income because he is retired) so technically capital gains tax should be zero but you are saying capital gains is added to income so lets say capital gains is 100k so her total income would be 110k? and in that case she has to pay 15% capital gains tax ? I am really confused...

Yes, the rate you pay on the capital gain takes into account all of your income for the year, including your net capital gains. So if you have $100,000 of capital gain income for the year, that will be added to the other income you have to determine what the tax on the capital gain will be. So if your other income was $10,000 in retirement income, you'd have $110,000 in income that would be used to determine what rate of tax would apply to the capital gain. Think about it a minute and it will make sense. Suppose that Bill Gates sold a bunch of Microsoft stock during the year and had $1 billion worth of gain on that stock and no other income. If his capital gain income was not counted to determine the rate of tax on the gain then he'd have zero income and the rate of tax on the capital gain would be zero, too. Congress is not going to let the super rich get away with paying no tax on a billion of gain income. Instead, he'd have to count the $1 billion of gain to determine the tax rate, and would end up paying hundreds of millions of dollars in tax on that gain.

 

[curiousv]

Yes, the rate you pay on the capital gain takes into account all of your income for the year, including your net capital gains. So if you have $100,000 of capital gain income for the year, that will be added to the other income you have to determine what the tax on the capital gain will be. So if your other income was $10,000 in retirement income, you'd have $110,000 in income that would be used to determine what rate of tax would apply to the capital gain. Think about it a minute and it will make sense. Suppose that Bill Gates sold a bunch of Microsoft stock during the year and had $1 billion worth of gain on that stock and no other income. If his capital gain income was not counted to determine the rate of tax on the gain then he'd have zero income and the rate of tax on the capital gain would be zero, too. Congress is not going to let the super rich get away with paying no tax on a billion of gain income. Instead, he'd have to count the $1 billion of gain to determine the tax rate, and would end up paying hundreds of millions of dollars in tax on that gain.

This capital gain is still confuses me. ...Hypothetically...The seller of said property has got the property as a gift from family member. This family member was holding the property for 10 years as primary resident. ...(i.e. long term capital gain?) Now lets say after holding it for about 6 months in his name ..if he sells ...is he liable for short or long term gain? I read somewhere that donee also received holding period of donor along with cost basis. So can I conclude donee's holding period is also 10 years and donee is liable for long term gain ?
If yes, if donee's income is only 10k ....donee is not paying any capital gain tax or income tax correct?

 

[Taxing Matters]

This capital gain is still confuses me. ...Hypothetically...The seller of said property has got the property as a gift from family member. This family member was holding the property for 10 years as primary resident. ...(i.e. long term capital gain?) Now lets say after holding it for about 6 months in his name ..if he sells ...is he liable for short or long term gain? I read somewhere that donee also received holding period of donor along with cost basis. So can I conclude donee's holding period is also 10 years and donee is liable for long term gain ?
If yes, if donee's income is only 10k ....donee is not paying any capital gain tax or income tax correct?

When you receive a gift of property from someone else, you take it with the same basis in the property that the donor (person giving you the property) had in it and you also take the holding period the donor had. So if the donor had the property for 10 years before giving it to you then you are considered to have held it for 10 years, too.

So if you got a property by gift that the donor had a $50,000 basis and a 10 year holding period, you take the property with a basis of $50,000 and 10 year holding period. If you sell it 6 months later for $200,000 then you have a $150,000 long term capital gain in the property since you are considered to have held it for more than a year.

Then (though I'm simplifying it a bit here) to determine the rate of tax on the capital gain, you add your other income to the net capital gain. So let's suppose you had $75,000 in other income (wages, dividends, retirement income, or whatever). You'd add that the $150,000 capital gain to get $225,000 in income. For all filing statuses in 2019 that would mean the gain is taxed at 15%.

What this means is that if you have zero in other income you can't avoid paying tax on a significant capital gain. So let's say in my example that you had the $150,000 of capital gain and zero other income. You are still going to pay a capital gain tax of 15% on part of that gain. The exact tax will depend on your filing status and other factors. The 15% rate is the maximum rate at that income but without other income some of that gain will be taxed at zero percent. The point here, though, is that you will have tax to pay on that kind of gain. You aren't going to avoid tax entirely just because your other income is zero or very low.

 

[TrustUser]

hi tm,

have they changed the way they do capital gains taxes ? i dont think i have ever claimed a capital gains tax, so it may simply be that i was never correct about it.

but i was under the impression that only a percentage of the capital gain itself, was added to ordinary income, and then your tax was calculated like normally ?

i think i recall the capital gains rate being both 20% and 40%, at various times. what i thought occurred (or at least used to occur) was that if i had a net capital gains of 100,000 (capital gains minus capital losses), was that say 40% of the 100,000 (or 40,000) was added to my ordinary income, and then my tax was figured accordingly ?

my understanding of what you are saying is different from this ?

 

[curiousv]

When you receive a gift of property from someone else, you take it with the same basis in the property that the donor (person giving you the property) had in it and you also take the holding period the donor had. So if the donor had the property for 10 years before giving it to you then you are considered to have held it for 10 years, too.

So if you got a property by gift that the donor had a $50,000 basis and a 10 year holding period, you take the property with a basis of $50,000 and 10 year holding period. If you sell it 6 months later for $200,000 then you have a $150,000 long term capital gain in the property since you are considered to have held it for more than a year.

Then (though I'm simplifying it a bit here) to determine the rate of tax on the capital gain, you add your other income to the net capital gain. So let's suppose you had $75,000 in other income (wages, dividends, retirement income, or whatever). You'd add that the $150,000 capital gain to get $225,000 in income. For all filing statuses in 2019 that would mean the gain is taxed at 15%.

What this means is that if you have zero in other income you can't avoid paying tax on a significant capital gain. So let's say in my example that you had the $150,000 of capital gain and zero other income. You are still going to pay a capital gain tax of 15% on part of that gain. The exact tax will depend on your filing status and other factors. The 15% rate is the maximum rate at that income but without other income some of that gain will be taxed at zero percent. The point here, though, is that you will have tax to pay on that kind of gain. You aren't going to avoid tax entirely just because your other income is zero or very low.

You are awesome...I was in wrong impression that if property owner's income is less than taxable amount i.e. in this case lets say 10k, filing status is single...and long term gain is 150k ...than they will not owe any capital gains tax.
You said ...""The 15% rate is the maximum rate at that income but without other income some of that gain will be taxed at zero percent.""
in this example how much gain will be at 0%? or in other words what will be total gain tax? is there any formula or website to put in this numbers to calculate possible gain tax?

Another question...if this person who received as a gift..is not using this home as primary residence...i.e. he/she lives overseas but donor who originally gifted the property is continuing to reside in the said property (same person who owns it for like 10 years - long term) ..can the new owner get primary residence exclusion ? or he/she has to meet 2 out of 5 years criteria ?

 

[FlyingRon]

For 2019, it's $39,375 if you're single, $78.750 if married filing jointly.
For 2020, it's $40,000 and $80,.000 respectively.

See page D-16 of this document for the calculation (as it applies to 2019): https://www.irs.gov/pub/irs-dft/i1040sd--dft.pdf

 

[LdiJ]

The taxpayer personally had to have lived in the home for two of the last 5 years in order to get a capital gains exclusion.

 

[Taxing Matters]

Another question...if this person who received as a gift..is not using this home as primary residence...i.e. he/she lives overseas but donor who originally gifted the property is continuing to reside in the said property (same person who owns it for like 10 years - long term) ..can the new owner get primary residence exclusion ?

No.

or he/she has to meet 2 out of 5 years criteria ?

The new owner must both own and live in it as his principal residence for at least two of the five years immediately preceding the date of the sale. The period of ownership starts the day he receives the gift — there is no carryover of ownership, only basis.