Another tax question: Proceeds from sale of foreign real estate

First, I know I can’t absolutely depend on, legally, advice I get here. That’s fine. I’m just looking for what to expect when I do pay for professional tax advice.

Any help is appreciated. :slight_smile:

Mrs. Satyagrahi was born in and lived all her life in Athens, Greece until 2001 when she came to this country and married. She is now a U.S. citizen.

When her mother died in 1990, she inherited a flat (what we would call a condo) in central Athens. After she moved to the U.S., her father has been living in the flat, rent-free, until he died last month.

Now she will be selling the flat–we expect it to go for about $100,000 U.S. dollars–and transferring the proceeds to our bank account in the U.S.

So…will the U.S. IRS want some chunk out of that?

Thanks for your help…

US residents pay tax on their world-wide income. The income from the condo will be the current sale price, less its value when inherited in 1990, less any improvements or other increases to basis, less any selling costs. If the real estate market in Greece is anything like in the US, she might actually have a loss!

If Greece also collects tax on the sale, she may get a tax credit to offset some or all of the foreign tax.

I love how the Straightdope always seem to have someone in the same predicament I’m in. I hope you don’t mind if I piggyback onto your thread and ask some questions, Satyagrahi.

My grandfather died in 2008 and left behind a decent sized estate, including an apartment, overseas. The estate didn’t get fully resolved until August 2009 when the apartment was sold and the proceeds divided into 4 parts, one for each son, including my father. This was promptly taxed by the Taiwanese government for whatever necessary amount required.

So my questions: What forms will we have to fill out at tax time? What types of documents will we need to have on hand? How much will we have to pay to the tax man (assuming an inheritance MUCH lower than the $1 million dollar threshold)? Complicating matters, my father’s been on unemployment for a while due to the recession, so how would an inheritance affect this?

I realize that you’re not my accountant and so on, and my father will be consulting a proper one before filing any tax returns, but I was curious about the potential monetary hit we’re going to be taking. If we’re going to be paying a lot more taxes, I might just tell my father to take his sweet time filing that return. :wink:

Estates and trusts are a real challenge. I just looked into this for a US resident getting a distribution from a trust in Panama.

The basic idea is that the transfer of money itself is not taxable and not reportable to the IRS. If anything is taxable, it will be earnings on the contents of the estate. (And it is a surprise to many people that the earnings on a trust or estate might be taxable whether they get any money out of it or not). For a decedent’s estate, earnings will be small and there might not be any net earnings after paying taxes and other expenses of the estate.

Wow, I am in a very similar situation this tax time and am similarly flummoxed. Freaky.

What I don’t understand, dracoi, is if you pay on your income (current sales price minus value in 1990), how could you possibly determine the value from 1990? Especially in a foreign country, and especially on an inherited property which wouldn’t have had any valuation. Somehow, I don’t think the OP is going to be able to look at a database of comparable apartment sales in Athens in 1990. How are he and the IRS going to come to an agreement on what the previous value is, especially when that number will essentially determine how much taxes he’s on the hook for?

(I’m using the OP circumstances since they are so similar to mine and it will be less confusing to change the details.)

Determining the value of capital assets is partially science and partially art.

I would start by finding out who the local property tax assessor is and then finding out the procedure to request the assessed value in 1990. I know that tax assessments and actual fair market value are often significantly different, but at least it gives us a number that was good enough for the government. (In the US, I’d start with, but even that doesn’t go back 20 years).

There is often a valuation done as part of probate proceedings, so I’d see if there are any documents remaining from that.

I might call some real estate experts who’ve been around that area for a while and ask them if they have anything to go on. (Again, for the US at least, can provide some pretty good numbers for more recent sales).

If all else fails, you can usually find some statistic about the average home value increases over a period of time. Often, these are ridiculously generalized and cover whole cities, states or countries. But they’re something. Work that backwards from the current value and you’ve got an estimate for the old one. This is nice because it (in an indirect way) includes the value of improvements made to the property.

Under audit, the IRS isn’t going to have any numbers that are better than yours. They would prefer some clear-cut document with provable numbers. However, my understanding (which is not from personal experience) is that they’ll accept a reasonable method used to come up with a valuation for the property. So you document the research and any opinions you got and run with it.

(And if you think a 20-year-old condo is bad… just try finding out the value of a farm inherited 50 years ago. Or stock that was purchased before it was publicly traded.)

That’s really helpful and a bit of a relief. Thank you, dracoi.