Was wondering if someone here has gone through a similar thing, a bit of a complex tax question. Say I stand to inherit some Mutual Funds in India and I am a US Citizen, the person who left it to me is a national of India.
India does not have an "inheritance tax" so I will legally acquire the assets in my name with no tax consequences, then after a few months say I decide to liquidate those and transfer the assets to the United States. Since US has a tax treaty with India which Cap Gains law applies?
I am thinking even though I have generated Cap Gains in India, I will get a step up in basis and have no Cap Gains under US law which is much more generous in these matters?
Does anyone here have experience with inheriting assets abroad and bringing them back to the US?
Foreign Inheritance and step up in basis
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Re: Foreign Inheritance and step up in basis
You haven't got any replies, probably because Bogleheads doesn't have many people who know anything about the Indian tax system.
Neither do I -- and I'm too lazy to read up on it to give you a real answer -- but I do have a fair amount of experience dealing with multiple countries' tax systems.
The tax treaty almost certainly isn't especially relevant here. I've never seen a tax treaty that works the way you seem to be saying. (Disclaimer: I've only read three so it isn't like I'm a super expert.)
Countries generally retain the right to tax "their" things. US investors are basically always paying foreign taxes, that's one reason people don't like international funds, after all.
That said, many countries also don't require foreigners to pay taxes. Foreigners who buy US stocks don't have to pay US taxes after all.
So it depends entirely on Indian tax law, I think. Will they tax this because it was originally bought inside of Indian and held by an Indian resident? Australia has a law like this where, in some circumstances, if you buy Australian property while in Australia but move out of Australia before selling it you still owe Australian taxes.
Or will they not tax it because you are not resident in India?
My guess is the latter but countries sometimes do funny things.
Neither do I -- and I'm too lazy to read up on it to give you a real answer -- but I do have a fair amount of experience dealing with multiple countries' tax systems.
The tax treaty almost certainly isn't especially relevant here. I've never seen a tax treaty that works the way you seem to be saying. (Disclaimer: I've only read three so it isn't like I'm a super expert.)
Countries generally retain the right to tax "their" things. US investors are basically always paying foreign taxes, that's one reason people don't like international funds, after all.
That said, many countries also don't require foreigners to pay taxes. Foreigners who buy US stocks don't have to pay US taxes after all.
So it depends entirely on Indian tax law, I think. Will they tax this because it was originally bought inside of Indian and held by an Indian resident? Australia has a law like this where, in some circumstances, if you buy Australian property while in Australia but move out of Australia before selling it you still owe Australian taxes.
Or will they not tax it because you are not resident in India?
My guess is the latter but countries sometimes do funny things.
Re: Foreign Inheritance and step up in basis
Yes, there's a basis step-up for U.S. income tax purposes.
See Revenue Ruling 84-139: http://www.legalbitstream.com/scripts/i ... 3710/1/doc, PLR 9246030, http://www.legalbitstream.com/scripts/i ... 3715/2/doc, PLR 201245006, http://www.legalbitstream.com/scripts/i ... 3715/1/doc.
See Revenue Ruling 84-139: http://www.legalbitstream.com/scripts/i ... 3710/1/doc, PLR 9246030, http://www.legalbitstream.com/scripts/i ... 3715/2/doc, PLR 201245006, http://www.legalbitstream.com/scripts/i ... 3715/1/doc.
Re: Foreign Inheritance and step up in basis
Keep in mind that any gains beyond the step-up will probably be taxed at PFIC rates and not as capital gains. If this is the case, it might be beneficial to sell the fund sooner than later and purchase a more tax friendly fund.
Re: Foreign Inheritance and step up in basis
And check if you need to file form 3520 with the IRS. If required to file and not filed or not filed timely, the penalties can be bad.