How do I account for a sale of foreign property?

August 26, 2008

From:  Max
Date:  Sat, 18 Aug 2007

Hello,

My wife is a U.S. citizen. Her parents gave her some land in Pakistan more than 10 years ago. Now she wants to sell the land and transfer the funds to the U.S.

Is this a taxable transaction? What tax rate applies?

Where can I find this on the IRS web site?

What if it was handled as a gift from her parents?

Sincerely,
Max

Answer

Date:  Wed, 22 Aug 2007

Hello Max,

As a U.S. citizen, your wife is subject to U.S. tax on her worldwide income. She might be eligible for a foreign tax credit for any Pakistan income tax on the transaction.

Assuming this wasn’t depreciable real estate, the transaction should be reported as a long-term capital gain, eligible for the 15% maximum federal tax rate.

Also assuming the title is in your wife’s name, you shouldn’t try to characterize the transfer as a current gift from her parents.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.