Implications for real estate gift

[jnc]

My parents are considering gifting me a real estate property (a plot of land) and I am having a hard time figuring out the tax implications for me if they do. They are not US citizens (nor do they live in the US) and the land is not in the US.

Most articles I can find about the gift tax talk about the consequences for the donor and assume no consequences for recipient, since I think they are assuming both are US citizens and paying taxes.

Does anyone have any information about the case when the donor is not a US citizen, or can point me to the right resources?

Thanks!

[VirginiaBob]

Not sure, but first thing to check is if you are even permitted to own the land if you are not a citizen of that country.  A lot of countries have laws that non-citizens are not permitted to own the land.  They can lease it, own a condo on it, but not actually own it.

[jnc]

Thanks Virginia! I am a dual citizen so yeah no problem in owning the land in that country. It is more the dear IRS that I am worried about :)

[retired?]

Don't ask, don't tell is my first response.  I understand the idea of taxing investments in overseas funds, etc., but ....

I imagine it cannot be more egregious than if they gifted you a property located in the U.S.  Presumably no tax initially and your cost basis would be based on the value at the time of the gift. 

If you don't want the property, you could ask them to sell and give you the proceeds.  I googled this:

tax implications of overseas gift

Look up form 3520.

[jnc]

Thanks you "retired". That's the same conclusion I arrived to with the help of my account :)

[CPA CB]

This may be a bit more complex then meets the eye.

While I can't presume to know US Tax Law in this regard - the typical standard with regards to other countries (Canada, UK, etc.) circulates around 'fair market value' and the 'deemed disposition' of property.

Since I'm a Canadian CPA I will highlight using our laws as an example:

If your parents were to 'gift' you the property, they would be absolutely INSANE to do so at a $nil value. We (and the US) assess 'non arms length' (ie family) transactions at fair market value. Irrespective of price - the IRS, CRA, or alternate tax enforcement agency, will want to see your parents dispose of the property at its value, and incur a capital gain. Your 'cost base' would then be this fair market value.

In Canada, if you take the "hide it" approach as suggested, the CRA here will assess your cost base at $nil, and still assess your parents disposition at fair market value. This leads to 'double tax' - an intentional penalty designed into the system. Chances are, if they live in another OECD country, this rule will be in place in some ways shape or form.

In some countries you can perform something called a 'tax deferred roll-over' which would allow your parents to gift their property to a corporation or trust in return for share and debt consideration. For many clients, this is an excellent way to defer capital gains, and also maintain the ability the withdraw funds from the entity on a tax-free basis.

I would highly suggest if this property is significant, you contact a tax lawyer or accountant in the respective country and/or the United States to discuss the most tax efficient manner to transfer the property. There may an upfront cost, but I guarantee this pales in comparison to the interest and penalties you will no doubt be assessed under the discussed 'don't ask, don't tell' model. Based on the limited information here, your Accountant is feeding you some pretty bad advice here. Cash gifts in the United States are limited to certain amounts, so further due diligence is warranted in this regard.

In Canada, these can outpace the value of property in about a year if you receive the maximum penalty, and the Canada Revenue Agency is far less aggressive than the IRS in tax enforcement matters.

Where is the property? It may be an excellent long term opportunity.