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

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