Discussion:Sale of Foreign Home

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Discussion Forum Index --> Tax Questions --> Sale of Foreign Home

Habari (talk|edits) said:

14 January 2007
I've a client who has lived in the US for 30 years. He sold his family home in 2006 that he inherited from his parents. This home is located outside the US. He did not live in the home in the past 5 years. Due to advancing age, my client found it difficult to maintain the property....hence the decision to sell. He has owned the home for the past 15 years. Does Pub. 523 (Selling your home) apply to properties outside the US? Since he does not satisfy the use test to claim the exclusion, can he qualify for a partial exclusion since he satisfies the ownerhship test? Thanks.

IntlTax (talk|edits) said:

15 January 2007
If you cannot exclude the gain if the property were located in the U.S., then you cannot exclude the gain if it is located outside the U.S.

Guya (talk|edits) said:

15 January 2007
It is however general limitation for FTC purposes so if there was foreign tax on the gain he could claim credit for that.

You should also check that a Form 3520 was filed to report the inheritance.

Lizzit (talk|edits) said:

15 January 2007

You're asking if he gets a partial exclusion since he passes the ownership test. The partial exclusion is based on the number of days it was his residence - it's a ratio of the number of days used as a residence divided by 730 (two years). It was never his residence as he never lived in it; hence, he can't get any partial exclusion.

He gets the step-up in basis from the date his parents passed on. This will be (hopefully) on his parents' estate tax return for that country. Multiply this value times the spot exchange rate on the date of death. Historical exchange rates are at www.oanda.com. The sale price must also use the spot exchange rate. The average exchange rate is not allowed on large transactions of this type.

Guya is right that Form 3520 should have been filed to report the inheritance (assuming it's more than $100,000 in value). If it's more than six years ago the IRS won't really expect him to correct this mistake now. If they died within the last three years, he should definitely file the form along with a request for a waiver of penalty under reasonable cause. If they died less than six years ago but more than three years ago, you'll have to make a judgement call as to whether or not you want to back file.

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