Selling House in Europe

[Michael2017 368]

Hello,

 

I have a difficult tax question and hope someone knows the answer here:)

 

1. I got a house gifted in Austria from my parents in 2013.

2. I got my green card in 2019 and became PR during that tax year.

3. I am now selling the house in 2022. 

4. The tax treaty between Austria and USA says that taxes for real property sales need to be taxed in the country of the property.

5. Based on other similar threads on VJ, I assume that If capital gain tax is calculated in USA, it is on the profit calculated based on the house worth on the day of my immigration (2019)

and the difference to the sales price. 

 

Now my questions:

a) Is there a link to IRS that says the basis of the house is the worth of the date of immigrating? I could not find anything like that to be honest in writing although it has been mentioned as a rule on VJ.

b) Do I still need to pay capital gain tax in USA if the double tax treaty says that taxation is made in the other country? I assume in that case I can deduct the tax paid abroad but the double tax treaty should

actually prevent paying taxes in 2 countries.

c) I do not know the exact worth of the house in 2019. Is it ok to estimate as follows: house sales price 2022 - average price increase of similar properties in Austria for 2021,2020,2019? I would check how much similar properties appreciated in that period of time and estimate the worth based on that? 

 

Thanks for the help!

 

 

 

 

 

 

 

 

[Lemonslice 4,549]

Will be worth to consult someone with proper knowledge on this one.

[Michael2017 368]

The EA I use knows nothing about international tax treaties etc. The CPA`s I used in my first 2 years cost an arm and leg 

[Wuozopo 4,285]

1 hour ago, Michael2017 said:

a) Is there a link to IRS that says the basis of the house is the worth of the date of immigrating? I could not find anything like that to be honest in writing although it has been mentioned as a rule on VJ.

Did you read Publication 551 Basis of Assets https://www.irs.gov/pub/irs-pdf/p551.pdf

Page 9 says

Property Received as a Gift
To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.
 

Just based on that, I would think an asset is an asset and you acquired it in 2013 so would use the FMV on the day you received it.  I am not familiar with what others have said on VJ, but like you, I want a source because some people say off the wall things that aren’t accurate. 

 

1 hour ago, Michael2017 said:

b) Do I still need to pay capital gain tax in USA if the double tax treaty says that taxation is made in the other country? I assume in that case I can deduct the tax paid abroad but the double tax treaty should

actually prevent paying taxes in 2 countries.

I wonder the same thing. If you are allowed to use a treaty benefit and it is not taxable by the US, do you have to report the gain?  I suppose it is worldwide income. How does the IRS even know the gain when it happened in another country and they got no official notification? Yeah, I’m no help. 😂 

 

 

1 hour ago, Michael2017 said:

c) I do not know the exact worth of the house in 2019. Is it ok to estimate as follows: house sales price 2022 - average price increase of similar properties in Austria for 2021,2020,2019? I would check how much similar properties appreciated in that period of time and estimate the worth based on that? 

Sometimes you do have to estimate and save your comps in you records if you ever have to explain. However, I’m still of the notion that you use the value from 2013 based on Pub 551. 

 

[Lemonslice 4,549]

Registrar might be able to provide older property tax record.  Value might be listed there. 

[Crazy Cat 39,193]

1 hour ago, Wuozopo said:

Sometimes you do have to estimate and save your comps in you records if you ever have to explain. However, I’m still of the notion that you use the value from 2013 based on Pub 551. 

This exactly what my CPA instructed me to do last year when I sold a house which was gifted to me in 2011.  I estimated the FMV at the time the gift was made.  She said that estimating was fine as long as we explained that we were using an estimate.

[Michael2017 368]

"I wonder the same thing. If you are allowed to use a treaty benefit and it is not taxable by the US, do you have to report the gain?  I suppose it is worldwide income. How does the IRS even know the gain when it happened in another country and they got no official notification? Yeah, I’m no help. 😂 "

 

Well the money will go into a bank account and this means the foreign bank will report it to IRS automatically. I will have to file FBAR/FATCA. So IRS will know about a large amount of money that hit my accounts in any case.

 

"This exactly what my CPA instructed me to do last year when I sold a house which was gifted to me in 2011.  I estimated the FMV at the time the gift was made.  She said that estimating was fine as long as we explained that we were using an estimate."

 

Was this property overseas in a tax treaty country? Also the main question is if the date of becoming a LPR is the data that counts or the date it was gifted. Also with the EUR so low now there actually is a currency loss thus the capital gains in USD will not be as high as in EUR.

 

My previous tax returns for 2019, 2020 all cost $5k so I really hoped I could figure this out without a specialized expat CPA that charges crazy amount of money.

 

Thanks for all the help!

 

Edited April 14, 2022 by Michael2017

[Michael2017 368]

https://hodgen.com/property-you-acquired-before-coming-to-the-usa/

 

I now found this one which seems to clearly state that 2013 will be the date. 

Now the only question is, does the treaty prevail, e.g. tax paid in Austria is the only tax and US tax does not apply because this is what

the treaty actually specifies? 

 

Capital Gains 1. Gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.

 

[Wuozopo 4,285]

1 hour ago, Michael2017 said:

https://hodgen.com/property-you-acquired-before-coming-to-the-usa/

 

I now found this one which seems to clearly state that 2013 will be the date. 

Now the only question is, does the treaty prevail, e.g. tax paid in Austria is the only tax and US tax does not apply because this is what

the treaty actually specifies? 

 

Capital Gains 1. Gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.

 

So how much is your capital gain since 2013?

 
How  much tax did you pay to Austria?

[Michael2017 368]

In Austria the tax is 4.2% of the sales price = $10,500. The capital gain on $100k (reasonable assumption since 2013 based on Austrian price indices ) would be 23.9% = $23,900 (yes I am in a terrible tax bracket for this one). Now the question is if the double tax treaty would do it and the tax paid in Austria is final or if US capital gain of 23,900 - $10,500 = $13,400 needs to be paid or not.

[Wuozopo 4,285]

10 minutes ago, Michael2017 said:

In Austria the tax is 4.2% of the sales price = $10,500. The capital gain on $100k (reasonable assumption since 2013 based on Austrian price indices ) would be 23.9% = $23,900 (yes I am in a terrible tax bracket for this one). Now the question is if the double tax treaty would do it and the tax paid in Austria is final or if US capital gain of 23,900 - $10,500 = $13,400 needs to be paid or not.

 Isn’t there a capital gain tax in Austria….based on the gain, not the sales price.

https://www.taxes.at/the_austrian_tax_system/index_eng.html#tax_system_income_tax_on_non-residents
Capital gains tax

a) Capital gains of the sale of non-business property are tax-free if the property has been held for at least one year.

b) Capital gains from the sale of new properties or real estate acquired as of 31 March 2002 and later will be taxed at the flat rate of 30%. In certain cases real estate properties acquired as of 31 March 1997 and later are also treated as new assets. The tax assessment base will be the profit, calculated as the sales price minus acquisition costs. 

 

 

You should be paying 15% max to the US on a long term gain. It’s not your income bracket. 

 

2021 Long-Term Capital Gains Tax Rates

Tax Rate	0%	15%
Single	Up to $40,400	$40,401 to $445,850
Head of household	Up to $54,100	$54,101 to $473,750
Married filing jointly	Up to $80,800	$80,801 to $501,600
Married filing separately	Up to $40,400	$40,401 to $250,800

 

So if you claim the gain, the foreign taxes paid could be claimed as a credit. You can also reduce the gain by various things like agent fees. Legal fees, improvements you paid for, etc.  You’d have to read about that in detail in Pub 551. 

[Michael2017 368]

No it is 23,9%, I paid it already the past years. It is 20% plus 3.8% additional penalty to fund Obamacare. It is not about the amount of your capital gain it is about your total taxable income. So if you are in the 37% bracket your long term capital gains are also 23,8%. At least since I am in the USA always my capital gain tax was 23.8% and there was even some additional Investment Income Penalty. I can´t speak for others but my CPA`s always got my taxes for Capital Gains on that. Yes, Improvements etc. could be deducted but I did not do much. Thanks for your efforts in looking into this too.

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates Here is the calculator that actually does ask for the taxable income as a basis of the capital gain bracket. The 3.8% (not 3.9% sorry) is another law that was added to fund Obamacare for higher earners.https://www.irs.gov/individuals/net-investment-income-tax

Edited April 14, 2022 by Michael2017

[Michael2017 368]

This calculator adds the 3.8% already making capital gain taxes 23.80%

https://smartasset.com/investing/capital-gains-tax-calculator#run1hHa0kl

 

our Capital Gains Taxes

Tax Type	Marginal Tax Rate	Effective Tax Rate	Tax Amount
Federal	23.80%	23.80%	$23,800
State	0.00%	0.00%	$0
Local	0.00%	0.00%	$0
Total Capital Gains Taxes			$23,800

 

 

However, I read the treaty over and over again and also the explanation to it. It seems 99% sure that there is no tax in the USA on property sales in Austria as the double taxation treaty overrules every local rule and the treaty clearly says real property sales are taxed in the country it is located in. 

Edited April 14, 2022 by Michael2017