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Tax Treatment of Foreign Gift to U.S. Citizen from Family Member

Posted: Wed Jun 17, 2020 1:24 pm
by lawman3966
I've asked about this situation before, but the plot has since thickened, so the issues are now different.

The background: My mother passed away in the Fall of 2019 leaving an estate that has still to be probated. The bulk of my mother's holdings, while living, was invested in a paid-off condo worth about $ One million CAN (thus, about $750K U.S.). Thus, I assumed that the estate was worth about $CAN 1.2 million.

The plot thickening will now be described. Upon my asking the executor how the condo fees were being paid given that the application for probate has not yet been processed, the executor (my sister) informed me that, for the sake of convenience, my Mum transferred ownership of the condo to my sister before she died. (Medicine ball drops!). My sister has indicated her intention to nevertheless distribute the proceeds of the ultimate sale of the condo equally to all three of us (there are three siblings total).

This would appear to significantly change the legal and tax treatment of any monies I receive from my sister from the sale of the condo. I am posting to learn what I can about the U.S. tax treatment of any payment I receive from my sister arising from the sale of the condo, and hopefully any strategies for reducing the tax bite arising from such a payment on the U.S. side. I expect to ask about any Canadian tax implications on the sister FWF site.

I have summarized some relevant data below. Please let me know if any additional information would be helpful.

My nationality status: Born in Canada. Canadian citizen, but not a Canadian resident. Naturalized U.S. citizen and U.S. resident.

My sister's nationality status: Born in Canada and Canadian citizen. _Was_ a U.S. Permanent resident between about 1980 and about 1991. She then moved back to Canada (Ontario) and has been a resident there ever since.

I am assuming that my mother's national status is no longer relevant, since any transfer of assets from the sale of the condo will come from my sister, and will not be part of the Ontario estate.

My questions:
Q1: What will the tax treatment of a payment of about $250K from my sister be assuming that no special status is accorded the payment, thereby apparently resulting in the payment being a gift from an adult sibling?

Q2: If significant taxation would apply to the gift described above, are there ways to diminish the tax bite this situation would impose?

Re: Tax Treatment of Foreign Gift to U.S. Citizen from Family Member

Posted: Wed Jun 17, 2020 1:44 pm
by afan
I have no idea whether your Canadian status changes things. If this were all in the US there would be no tax to the recipient of the gift.
The donor would have to file a US gift tax return and use up part of their lifetime exclusion. That figure is very high right now so most people do not have to worry about it. Of course, the exclusion could change in the future.
Does this gift and estate tax filing apply to a Canadian living in Canada? No idea. You need a US trusts and estates lawyer. You probably need that anyway since mom lived in the US.

Re: Tax Treatment of Foreign Gift to U.S. Citizen from Family Member

Posted: Wed Jun 17, 2020 10:24 pm
by codedude
Is your sister a covered expatriate? If so, you need to pay high tax (about 40%) of the gift.

Re: Tax Treatment of Foreign Gift to U.S. Citizen from Family Member

Posted: Thu Jun 18, 2020 6:08 am
by lawman3966
codedude wrote: Wed Jun 17, 2020 10:24 pm Is your sister a covered expatriate? If so, you need to pay high tax (about 40%) of the gift.
I'm hoping that she's not a covered expatriate. The rules regarding that are covered by IRS Section 2801, which does not appear to be in effect yet. According to summaries of the law that I've seen on law firm sites she would not be a covered expatriate, since she left the U.S. in 1991, which is well before the threshold date of June 2008 referred in Section 2801.