What happens if a U.S. citizen inherits property in another country?

Hey all,
So here’s the question. Let’s say that a U.S. citizen inherits a house and land in Sweden when a relative dies and leaves it to them (in Varmland, if that makes a difference). What exactly happens? What kind of taxes are there? What happens if they want to live in the house for two years? All opinions welcome! :slight_smile:

I actually have some experience with this in helping clients. The answer is that th execution of the estate is done in the same way as for anything one else. This most often crops up with emigrants whose parents have died leaving them property.
Said US citizen has to report this like anything else which is income to the USG.

So basically, what kind of taxation would it be? Is there a difference between living in the house and selling the house? Do you keep your citizenship if you just want to live there for a couple of years? Yes, there’s a reason for all of this, but it’s really too dumb to explain… :wink:

U.S. taxation:

If the relative who died is not a U.S. citizen, and the property is outside the U.S., the estate and the inheritance of the property are outside the purview of U.S. taxation. At the time of inheritance, there is nothing to report, and no tax to pay in the U.S.

The U.S. citizen acquires the property with “step-up basis”, just as he would if he inherited it from a U.S. citizen, i.e. his cost basis is the market value at the date of inheritance (converted to USD at the then-prevailing exchange rate).

This means that if the U.S. citizen sells the property immediately, there is no U.S. tax to pay on the disposal, either.

If the U.S. citizen retains the property and obtains rental income from it, he must report the income on his U.S. tax return going forward. If he sells the property later, he must report any capital gain or loss all accounted for in dollars - i.e. the sale price converted to USD at the (different) exchange rate at the time of sale, minus the USD basis described above.

Swedish taxation:

You need separate Swedish tax advice, but these are the questions:

Taxation of the estate as a whole will fall under Swedish inheritance tax law, obviously. The question arises whether the will stipulates Swedish taxes to be paid out of other assets, or whether the house might need to be sold to pay the Swedish tax. If it’s not sold, the next question is the Swedish tax basis of the house after inheritance.

Going forward, rental income for a non-resident might be taxable in Sweden, countries differ on that. If so, you still have to declare the income in the U.S., but there is probably a U.S.-Sweden tax treaty that will allow you to take a Foreign Tax Credit (form 1116) on your U.S. tax return for Swedish taxes paid, do that overall you are not taxed twice. But you can’t just blithely say “I paid taxes in one country, obviously I don’t need to pay them in the other”. It doesn’t work like that. You need to start from the position of satisfying your tax obligation in both places, then fill out the forms to take the tax credit. It is a non-trivial process.

There may also be Swedish capital gains payable when the property is sold. If so, that will depend on the Swedish cost basis, and everything will be worked out in Krona. There may be no logical relationship between Swedish and U.S. cap gains. You can have weird situations when currencies move a lot. I have a property in the U.K. on which I have about a 20% capital gain in sterling payable to the U.K. tax man who does his accounts in sterling, and a 10% capital loss for my U.S. tax return where I must account for everything in dollars.

You would need to explain exactly what is envisioned, and the status of the person involved, however dumb you think it is. A U.S. citizen doesn’t lose citizenship by living abroad.

I believe the above apply not just to a US citizen, but what the US government now defines as a “US Person”. Which includes green card residents of the US, or even a green card holder who is not living in the US at the time.

I’ll leave the tax question to those who know of what they speak, but on this point… ownership of a property does not give you residency rights in Sweden - you would therefore not be able to live there for two years unless you were eligible in some other way (passport, etc).

Okay, here’s the answer as to why I want to know this, or at least enough of this to sound convincing. I warned everyone how dumb this was… :rolleyes:

L.A. Fitness is notorious for making people jump through endless hoops when they want to cancel a membership. You can’t cancel online or by phone or by letter, you ALWAYS have to go in and talk to a member rep whose job it is to keep you there, etc etc etc. They’re especially bad here (Portland) and a lot of people I know have wasted so much time and had miserable experiences just trying to cancel. My sister was able to do this in five minutes. The story she told was that she was moving to Germany and didn’t know how long she’d be living there, and clearly, there aren’t any gyms in Germany.

I am under a lot of stress right now for other reasons, I need to cancel the membership, and I do not want to deal with high-pressure sales techniques. So that’s how I came up with this idea! My great-aunt Ingrid died and left me a house and land in Jonkoping (Varmland, Sweden.) I’ll be living there for at least two years. And all of this is actually true in… um… some kind of alternate universe. :wink: My relatives actually did come from that area (they left around 1880, though.) But I feel like I should know enough details for it to make sense if someone at L.A. Fitness asks, “oh, how did it happen, are you going to have to pay taxes, etc etc etc.” My sister got lucky-- she didn’t even have a city in Germany picked out where she was supposedly moving to, just a made-up military spouse who was stationed there, but nobody asked. I just think that you never know… so having some facts at hand seems like a good idea.

I’m going there in about an hour to cancel the membership, so ANY last pieces of advice would be great, and I’ll let everybody know how it works…

Do not allow them to bait/argue with you. Your reason(s) for cancelling should be a bare minimum. Full stop.

So when I wrote out a careful explanation for you of the tax consequences that you asked for, I was completely wasting my time.

Piss poor, utterly dickish behavior.

Moderator Note

You could have asked this question in IMHO and given the real reason you wanted to know. Instead you wasted people’s time thinking it was a serious question. Do not do this again or you will be subject to a warning.

I understand your annoyance, but the OP did not actually say she had inherited land. (Otherwise I might have issued a warning to her.) In any case, let’s refrain from comments like this in GQ even in such situations.

No warnings issued. This is closed.

General Questions Moderator