# Selling gift from foreign relative, what is taxable?



## P123 (Dec 2, 2015)

Hi all,

Hi (Bev ;-)

I live full time in Austria (dual citizen) and sold a gift (collectible) from a relative (non-U.S. person). The gift was sold within one year which (according to my research) means that the 28% capital gains tax does not apply, rather my 10% tax bracket as I earn below the reporting threshold for my age/status.

I sold the collectible through an antique dealer. I am looking for help regarding my exact tax liability. Am I taxed on the price for which the collectible was sold, or for the net proceeds? The antique dealer's fee was a third of the sale price, the remaining proceeds were then split with another relative, leaving me with a third of the sale price.

I assume I would only have a tax liability on my third and not the full sale price?

I am thankful for any help or tips!


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## Bevdeforges (Nov 16, 2007)

In any event, you would declare only the net proceeds - the "costs" of the sale would always be deductible no matter what. And so would your "basis" in the property, though as a gift, your basis is effectively 0. 

Now, was the original gift made to both you and the other relative? If so, then both of you have a 0 basis in the property and you can clearly split the net proceeds. However, if the collectible was a gift to you and you alone, then basically you would report the full amount realized (i.e. net proceeds after the dealer's commission) and you have then made a gift to your relative.

Unless the sale brings you above the threshold level for reporting, however, you may not have to report anything.

The other thing to consider is where you sold the item. If you sold it in the US, I suspect the dealer will wind up sending you a 1099 reporting the sale - and then that is the figure you have to work with in reporting the sale. If you sold it through a foreign dealer, it's really unlikely the IRS will ever have a clue that the sale (or the gift) took place. I'd concentrate on any tax reporting and liability you may have for your country of resident - and then any tax you pay on the transaction is going to be creditable against any US tax liability anyhow.
Cheers,
Bev


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## P123 (Dec 2, 2015)

Bevdeforges said:


> Now, was the original gift made to both you and the other relative? If so, then both of you have a 0 basis in the property and you can clearly split the net proceeds. However, if the collectible was a gift to you and you alone, then basically you would report the full amount realized (i.e. net proceeds after the dealer's commission) and you have then made a gift to your relative.



The gift was to my relative and I, however, I was responsible for organizing the sale. So, yes, my third was really "my third."




Bevdeforges said:


> The other thing to consider is where you sold the item. If you sold it in the US, I suspect the dealer will wind up sending you a 1099 reporting the sale - and then that is the figure you have to work with in reporting the sale. If you sold it through a foreign dealer, it's really unlikely the IRS will ever have a clue that the sale (or the gift) took place. I'd concentrate on any tax reporting and liability you may have for your country of resident - and then any tax you pay on the transaction is going to be creditable against any US tax liability anyhow.
> Cheers,
> Bev


I sold the item in Austria. The item was never appraised (as far as I know). Does that mean that technically I'd be taxed on my "net" proceeds? What I mean is if I can't establish cost basis (appraisal, etc) before the sale, then the sale price (or in this case my third) is what is subject to tax (if, of course, I am over my reporting threshold for the year). Is that accurate?

Thanks


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## Bevdeforges (Nov 16, 2007)

Philipp123 said:


> T
> I sold the item in Austria. The item was never appraised (as far as I know). Does that mean that technically I'd be taxed on my "net" proceeds? What I mean is if I can't establish cost basis (appraisal, etc) before the sale, then the sale price (or in this case my third) is what is subject to tax (if, of course, I am over my reporting threshold for the year). Is that accurate?


Basically, if you inherit something, you assume the fair market value of the item as of the date of death of the decedent. But if you receive a gift, that means by definition, you receive something free of any sort of obligation or payment, and so your basis in the property is 0. When you sell something, your "gain" on the sale is what you got for the item, less your basis, and less any selling costs (like dealer commissions, or fix-up costs prior to sale).
Cheers,
Bev


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## JustLurking (Mar 25, 2015)

Bevdeforges said:


> But if you receive a gift, that means by definition, you receive something free of any sort of obligation or payment, and so your basis in the property is 0.


Huh? The IRS says differently. A gift's basis is apparently either the donor's adjusted basis or the FMV when given (and which of these it is depends on some conditions). Neither is likely to be zero.


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## Bevdeforges (Nov 16, 2007)

JustLurking said:


> Huh? The IRS says differently. A gift's basis is apparently either the donor's adjusted basis or the FMV when given (and which of these it is depends on some conditions). Neither is likely to be zero.


That makes sense - though given that the gift was from a non-US person, the chances of the IRS having any record or knowledge of it are pretty slim. I'd really be inclined to just skip the whole thing.
Cheers,
Bev


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## JustLurking (Mar 25, 2015)

Bevdeforges said:


> ... given that the gift was from a non-US person, the chances of the IRS having any record or knowledge of it are pretty slim.


Except if above $100k, in which case the OP should have filed IRS form 3520 on receipt.

Otherwise yes, I'm surprised that someone living completely outside the US would really bother with all of this nonsense for the IRS. When you look at it objectively, it's insane.


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## P123 (Dec 2, 2015)

JustLurking said:


> Except if above $100k, in which case the OP should have filed IRS form 3520 on receipt.
> 
> Otherwise yes, I'm surprised that someone living completely outside the US would really bother with all of this nonsense for the IRS. When you look at it objectively, it's insane.


Hehe, I understand you JustLurking. But at the same time I am trying to minimize my potential for problems.

On a side note, can anyone answer the following:

Let's say you don't meet the reporting threshold but you file anyway and you accidentally under report your income. Can you be penalized for that?

So, technically, no return required but you fudge it up nonetheless...is there a penalty for accidentally under reporting if you don't have any tax due to begin with?

yeah, yeah, I know...just humor me. :yo:


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## Bevdeforges (Nov 16, 2007)

Philipp123 said:


> Hehe, I understand you JustLurking. But at the same time I am trying to minimize my potential for problems.
> 
> On a side note, can anyone answer the following:
> 
> ...


That's actually an interesting question. And probably one with no definitive answer. However, if you file when you don't have to, and assuming the unreported income still won't bring you above the filing threshold, I think there's literally nothing they can (or would) do in any event.

If the unreported income brings you above the filing threshold (and I mean significantly - not just a few thousand bucks), you have to remember that unreported income is not subject to any statute of limitations. So theoretically they could come back at you 10 or 20 years later (assuming it was worth their while). Anything else is gone and forgotten after 4 years thanks to the statute of limitations.
Cheers,
Bev


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## P123 (Dec 2, 2015)

Bevdeforges said:


> If the unreported income brings you above the filing threshold (and I mean significantly - not just a few thousand bucks), you have to remember that unreported income is not subject to any statute of limitations. So theoretically they could come back at you 10 or 20 years later (assuming it was worth their while). Anything else is gone and forgotten after 4 years thanks to the statute of limitations.
> Cheers,
> Bev


When you say "unreported" income not ever running out the statute of limitations are you referring specifically to unreported income "over" the filing threshold (taxable income) or unreported income period?


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## Bevdeforges (Nov 16, 2007)

Philipp123 said:


> When you say "unreported" income not ever running out the statute of limitations are you referring specifically to unreported income "over" the filing threshold (taxable income) or unreported income period?


We're getting into semantics here. If your total worldwide income is less than the filing threshold, then it's not reportable and the statute of limitations doesn't come into it.

If your filing threshold is, say, $10,000 and your total worldwide income comes to $15,000 due to $12,000 you reported and $3,000 you "neglected" to report, then theoretically, the statute on what you reported runs out in 4 years, whereas there is no statute on the $3,000 you didn't report. Now, if for any reason they a) find out about the extra $3,000 and b) decide to pursue you for it, the full $15,000 has to be taken into account to determine how much tax you evaded by failing to report the full amount.

But to be honest about it, for the IRS to get wind of a foreign source of income that you didn't report (for whatever reason), the amount involved has to be significant (i.e. generate a significant amount of tax for the IRS); there would have to be no local taxes on the income that would potentially be creditable against the US taxes and there would have to be some way that the IRS would stumble onto the fact of the transaction (i.e. they'd have to be looking at your tax returns for some reason).

They do not have routine access to your banking transactions outside the US. (Even the FATCA information is pretty limited.) They do not routinely compare your US returns to your foreign returns (unless they suspect something and have gotten the necessary clearances from your local tax authority). 
Cheers,
Bev


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