I am a U.S. citizen living in the United States. Many years ago, I inherited a piece of land which is located in a European country. I now would like to sell that piece of land.
Because I am not much of a tax expert, I am posting here in the hope that somebody can explain to me in some detail how to handle this from the point of view of disclosing this on my 1040. (Additional forms to be enclosed with the 1040, what rate of exchange to use to convert the sale price into U.S. Dollars, whether the money pocketed is considered regular income or whatever, etc. etc.)
You are going to need to know the value at the time you inherited it, and the exchange rate at that time. You multiply the two to get the "basis" of this property in US Dollars (USD)
Then you convert (not really exchange, just do a calculation) of the proceeds from the sale at the exchange rate on the day of the sale. That is the sale proceeds in USD.
The difference between the two is your gain on sale.
Example:
You inherited the property in 1996 when the exchange rate was 2 crowns per dollar, and the value was 200,000 crowns. Your basis is USD
100,000. It can be a lot of effort trying to track down the value at the time of the inheritance, but you have to do it, at least a reasonable and defensible estimate.
You sold the property for 300,000 euros, and the exchange rate on that day was 1.3 dollars per euro. Your sale proceeds are $390,000 dollars.
You have a long term capital gain of $290,000 dollars.
You may owe taxes in the foreign country. If you paid taxes there, you get a credit for that on your US tax return, but you report the entire gain in USD on your US tax return. If the foreign tax rate is higher than the US one, you may not receive the full credit, you just get the credit equal to the amount of the US taxes.
This assumes that this is personal property and was not rented out during the interim. Otherwise things get a lot more complicated.
Now you should wait until someone who really knows what they are talking about comes by and gives you the real scoop.
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