Author Topic: How do I declare money from a sale that is not in my name?  (Read 1225 times)

LadyStache in Baja

  • Pencil Stache
  • ****
  • Posts: 698
    • My Casa Caoba: Making meaning in Mexico
How do I declare money from a sale that is not in my name?
« on: August 01, 2015, 12:20:51 PM »
We are looking to put our house on the market.  From the sale, I'd like to invest a portion of that into MY vanguard funds.  Here's where it gets tricky:

The house is in my Mexican partner's name, in Mexico.  (I am a US citizen, not yet a Mexican citizen).  And we are not married.

So how do I declare this chunk of money suddenly coming into my account?

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1046
Re: How do I declare money from a sale that is not in my name?
« Reply #1 on: August 01, 2015, 12:45:44 PM »
This is actually potentially really complicated. For that reason, I am not going to provide a comprehensive answer. Instead, I will just provide some general principles to point you in the right direction. You should not rely on this information and should instead retain your own professional advisor.

I'll start with the general rule and then move onto the exceptions.

The general rule is that if title to the house is not in your name, then its disposition has nothing to do with you and you do not need to "report" anything for US tax purposes. There is no taxable event just because your unmarried romantic partner happens to sell a house. When your partner transfers some of the proceeds to you, that may either be (1) a gift to you, or (2) it might represent the creation of a trust where your partner is the grantor, you are the trustee, and both you of you are beneficiaries, i.e. you are holding the money for the joint benefit of both of you. Either of those transactions has potential US reporting consequences if your partner is neither a US citizen nor a resident of the US. I'm not going to describe those potential consequences.

Where things get even more complicated is that from your post, it sounds like you might have a claim of beneficial ownership to a portion of the house and its corresponding sale proceeds. For example, even though title to the house is exclusively in your partner's name, it may be that you have jointly contributed to the down payment and jointly paid down the mortgage loan, such that if you separated right now, you would be able to prevail in an action for unjust enrichment against the other partner to reclaim your interest in the house. In other words, even though legal title to the house rests with your partner, he is really holding your portion thereof in a "resulting trust" for your benefit. If this is indeed the case, then a portion of the capital gains on disposition of the house would be included in your income and needs to be reported on your US tax return (subject to any other tax exclusion). Under this theory, however, there is no gift or other transfer when you move your portion of the proceeds into your own accounts, because you already had beneficial ownership over those funds (unlike in the theory above where it was a gift or grant to a trust), although it might constitute a reportable distribution from a foreign trust.

I hope I have convinced you of the possible complexity of this situation. You need to retain counsel and fully appraise them of all of the relevant facts and the full details of the situation. That cannot be achieved in this message board format.
« Last Edit: August 01, 2015, 12:54:17 PM by Cathy »

LadyStache in Baja

  • Pencil Stache
  • ****
  • Posts: 698
    • My Casa Caoba: Making meaning in Mexico
Re: How do I declare money from a sale that is not in my name?
« Reply #2 on: August 02, 2015, 09:47:48 AM »
Yes awesome, thank you Cathy!  That is exactly what I was looking for!