I inherited a house in Hungary and sold it for $235000. I paid inheritance taxes of $7000, transferred the money to the US. What is taxable/deductible in this scenario?

Forum|Forum|7 years ago
June 1, 2019
1 reply
0 views

I inherited a house in Hungary and sold it for $235000. I paid inheritance taxes of $7000, transferred the money to the US. What is taxable/deductible in this scenario? There is a tax treaty with Hungary, but does not specify inheritance related income. Is the $7000 a tax credit in the US? Is it deductible? Is the 235000 considered income in the US?

TurboTax Deluxe Windows

Best answer by TomYoung

There is no inheritance tax in the US at the federal level, though some states do have one. You might have a gain or loss to declare on the difference between the net proceeds after selling expense and the basis in your hands - which would be the fair market value at the date of death.

Since you termed the $7,000 an "inheritance tax" and as the US doesn't have such a tax I wouldn't think it would be deductible as a tax credit for income tax purposes.

Tom Young

T

TomYoungAnswer

Employee

There is no inheritance tax in the US at the federal level, though some states do have one. You might have a gain or loss to declare on the difference between the net proceeds after selling expense and the basis in your hands - which would be the fair market value at the date of death.

Since you termed the $7,000 an "inheritance tax" and as the US doesn't have such a tax I wouldn't think it would be deductible as a tax credit for income tax purposes.

Tom Young

ScruffyCurmudgeon

Employee

The "Inheritance Tax" - whether in this case Foreign or otherwise in one of the 6 states with state-level Inheritance Tax [IA, KY, MD, NB, NJ, PA] - is not an income tax and therefore the issue of credit does not apply. See the IRC citation below which makes clear that the Foreign Tax Credit applies to income received and the taxation of that income.

26 CFR 1.861-8 - Computation of taxable income from sources within the United States and from other sources and activities.
§ 1.861-8 Computation of taxable income from sources within the United States and from other sources and activities.
(a) In general -

(4) Statutory grouping of gross income and residual grouping of gross income. For purposes of this section, the term “statutory grouping of gross income” or “statutory grouping” means the gross income from a specific source or activity which must first be determined in order to arrive at “taxable income” from which specific source or activity under an operative section. (See paragraph (f)(1) of this section.) Gross income from other sources or activities is referred to as the “residual grouping of gross income” or “residual grouping.” For example, for purposes of determining taxable income from sources within specific foreign countries and possessions of the United States, in order to apply the per-country limitation to the foreign tax credit (as in effect before enactment of the Tax Reform Act of 1976), the statutory groupings are the separate gross incomes from sources within each country and possession. Moreover, if the taxpayer has income subject to section 904(d) (as in effect after enactment of the Tax Reform Act of 1976), such income constitutes one or more separate statutory groupings. In the case of the per-country limitation, the residual grouping is the aggregate of gross income from sources within the United States. In some instances, where the operative section so requires, the statutory grouping or the residual grouping may include, or consist entirely of, excluded income. See paragraph (d)(2) of this section with respect to the allocation and apportionment of deductions to excluded income.

If this posted response is useful to you, please click on the upraised hand in the lower left of this post. Thank you. Scruffy Curmudgeon--PFFM/ IAFF, retired FireFighter/Paramedic - Locals 718/30, Veteran USAR O3 AIS/ASA '65-'67 NOT INTUIT EMPLOYEE USAR 64-67 AIS/ASA MOS 9301 - O3 - Just donating my time**Say Thanks by clicking the thumb icon in the lower left corner -it means nothing but makes those than answer feel wanted.