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Dear Tax Talk,
I’m an American; my wife is a foreign citizen, but she is a U.S. green card holder (U.S. resident). She has a piece of property in her native country that she is considering selling. With her being an immigrant to the U.S., will she have to pay taxes if she sells the land and brings the money to the U.S.? Moreover, she is a housewife and does not work. Will she still need to file a tax return form if she sells her property and brings the money to the U.S.?
When she married you she also got hitched with the Internal Revenue Service. An individual who holds a green card is considered a resident of the United States for tax purposes. Residents are required to file and pay taxes on their entire worldwide income. Hence, the sale of the property would be reportable on her taxes. As she is married to you, this would be done by filing jointly and reporting the sale on Schedule D. (From the time of your marriage, you should have been filing a joint return to take advantage of the lower tax rates and her dependency exemption.)
The selling price and the cost of the property need to be converted to U.S. dollars for purposes of tax reporting. The sale is reportable whether or not the money is transferred to her accounts in the U.S. Use the currency exchange rate in effect at the time of the purchase and the sale to determine any gain or loss.
For many foreigners who are not well-advised when immigrating, the sale of property post-residency is a tax trap. Although your wife may have substantial appreciation in the property prior to becoming a resident, the law still requires her to use the original purchase price. She would have been well-advised to have sold the property prior to her coming to the U.S.
If any income taxes are due to her native country on the sale, a foreign tax credit is available. Use Form 1116 to compute the credit. Any expenses of the sale should be added to the cost of the property in computing gain or loss. If she has to travel to sell the property, the travel expenses would be considered an expense of the sale.
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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.