Capital gain on a overseas property?

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Latest post Wed, Mar 12 2008 1:09 PM by adjuster jack. 5 replies.
  • Tue, Mar 11 2008 1:55 PM

    • cgtax
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    Question [=?] Capital gain on a overseas property?

    We emigrated in US nine years ago from Romania, Europe. At this point we are American citizens. When we left Romania we owned a condo, but we could not sell it because my parents were living in it at that time. My parents passed away and now we would like to sell this property in Romania. I want to know what taxes I am supposed to pay in America for selling this condo.

    What amount is it considered capital gain? With the economy changing in Romania after Revolution the prices have changed considerably and I want to know how we evaluate the original price at this time to be realistic. And what document goes with that evaluation.

    I will bring a large amount of money here in the US in our account (the value of the condo being probably over $100,000). I will probably wire the money. I want to know what papers I need to have to prove this is my money, from selling my house, for taxes purpose how I calculate the capital gain or loss, and the form I am supposed to fill, and papers that are supposed to be attached to that in the event IRS ask me about my money.
  • Tue, Mar 11 2008 2:25 PM In reply to

    re: Capital gain on a overseas property?

    Here's an article that appears to answer most of your questions:

    http://taxes.about.com/b/2006/05/26/tax-on-sale-of-home-and-foreign-bank-accounts.htm

    I don't know what you mean by "evalute the original price".

    The original price is what you paid for the property when you bought it. There's nothing to evaluate.

    If you made any capital improvements (beyond maintenance and repairs) you add that to your purchase price. The total is called your basis.

    Then you take the current sale price less any real estate commissions or other costs involved in the sale. The difference between the net sale price and the basis is the taxable amount.

    After 9 years it should qualify for long term capital gains treatment in the US.

    You might also have to pay tax in Romania on the gain.

    As for what records you should keep, I suggest keep all the paperwork from the original purchase and financing, plus any documentation of capital improvements, plus anything generated by the sale of the property.

    One other thing to consider. Were your parents paying you rent? If they were, you were supposed to pay US taxes on the rental income. If they weren't paying you rent were they paying the mortgage payments? That would be the equivalent of rent.

    If there were mortgage payments you may have missed out on the deduction for mortgage interest all those years and you may have also missed out on deducting property taxes.

    It's probably way past time that you consulted with a tax pro about what to do now and what you might have to do about prior years.





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  • Tue, Mar 11 2008 4:31 PM In reply to

    • Drew
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    • Joined on Thu, Mar 30 2000
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    re: Capital gain on a overseas property?

    Well so far you haven't sold it and you uhave no iead of the trips and problems you may run into just to get it sold and the proceeds converted to $US--even if it sels for $130,000 you may hve $25,000 of selling and other expenses-lets say its a net of $105,000--thats the easy part.

    You or sale may be subject to Romanian taxes?

    Now you may find multiple views on how to handle that condo as t cost and I'll just bet you did NOT treat it as a rental property on your prior US returns? And it may not be worth $5000 of legal talent to sort out out legal vies of best treatment--lets say it cost you $15,000 and you have records to support $5,000 of improvements (at then exchange rates) and you did not treat it as inventment or rental while parents were in there -- then you probable have a bout 20,000 as a cost basis---and your paper long terms gain is about 105,000-20,000=85,000 and your maximum Federal tax is proablly about 15% or $5,600.

    Once your parent died if you put place up for rent and needed to go to check out your rental and finish up portions of various business transactions then your business expenses may be deductible? --but use some common sense --it may be reasonable to spend 3 days to sort out some business details--but not 25 days to visit every friend you ever had in Romania!

    There are some currency reporting rules to move 100K or more into US--be sure to sort them out.



  • Wed, Mar 12 2008 12:16 PM In reply to

    • cgtax
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    • Joined on Tue, Mar 11 2008
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    Question [=?] re: Capital gain on a overseas property?

    Well, another thing I just find out. There is a Treaty between US: http://www.fifoost.org/rumaenien/steuern/dba_us-rum/index.php
    for the avoidance of double taxation of income and property and the prevention of fiscal evasion.
    That means I will pay taxes in Romania for the capital gain and all the other taxes resulted from selling, so why a should pay here, again, taxes for the same capital gain.
    Is there something that I am missing here?
  • Wed, Mar 12 2008 1:09 PM In reply to

    re: Capital gain on a overseas property?

    "That means I will pay taxes in Romania for the capital gain and all the other taxes resulted from selling, so why a should pay here, again, taxes for the same capital gain.
    Is there something that I am missing here?"

    Yes.

    You may still have to file the sale with your US tax return but you might get a credit for the taxes paid in Romania.

    It's time to talk to a tax pro.

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • Thu, Mar 13 2008 1:55 AM In reply to

    Feedback [*=*] re: Capital gain on a overseas property?

    Since you are a U.S. citizen, your sale of property anywhere in the world is subject to U.S. tax. Your gain will computed just the same as it would if the property were located in the U.S. You take your amount realized (sales price less certain selling expenses) and subtract from that your adjusted basis (what you paid for it with certain adjustments). That difference is your gain. IRS publication 551 explains in much more detail how to compute your basis, and publication 544 discusses how to compute and report the gain.

    The U.S. does have a tax treaty with Romania, but it will not be of a lot of help to you because the U.S. puts a "savings clause" in all its tax treaties that reserves the right to tax U.S. citizens and corporations notwithstanding anything else in the treaty. Romania will have the right to tax the gain on the property, too. If it does, however, you will be eligible to claim a foreign tax credit on your U.S. tax return for the amount you paid. If the Romanian tax is larger than the U.S. tax, then the effect of the credit will be that you pay no U.S. tax on the gain.

    If you have the funds directly wired from a Romanian bank into your U.S. bank account, you should have no special reporting requirements. Instead, the bank will report it if needed.

    This is complex enough that you may want to see a local tax professional who is familiar with these sorts of issues.

    You can get forms and publications at most IRS offices, have them mailed to you by calling the IRS toll free at 800-829-3676 (800-TAX-FORM), or download them from the IRS at:
    http://www.irs.gov/formspubs/index.html
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