Money in Another Country

[Rich]

My wife is going to inherit a substantial sum from a German relative. Around 50,000 Euros ($60K ??). Although of German birth, she is now an American citizen but has many relatives living in Germany. I don't have a clue as to what tax liabilities we will face when this comes about, whether it would be wiser to leave the money in Germany (in some sort of investment or bank account) for diversity of assets, or what. Any thoughts out there?

 

[ER@40]

As I understand it, there are tax treaties between most EU countries and the US, unfortunately this sometimes means you have to pay tax in both countries, and then reclaim it from one of them later - often the country you reside in.

This is a very standard tax scenario. The IRS have an Ask questions link on their site, I can't give you the exact link because you have to navigate to it. But I suggest 'anonymously' emailing them that scenario and get their frequently impartial feedback.

 

[Rich]

Thanks for the input. Taxes in two countries now?!? Sigh...

 

[haha]

If you have the time, that would be enough to cover a nice year in Europe, or even more if you are careful.

Rent you home out and take off!

Mikey

 

[dex]

You must declare on your USA tax form if you have a overseas account and declare any income from it. It is taxable income.

The basis for the gain or loss on the sale of the asset (you could gain or lose money on the sale of the euros) is the date of death of her farther.

 

[bpp]

Dex writes:

You must declare on your USA tax form if you have a overseas account and declare any income from it. It is taxable income.

Yes, you will need to file Form TD F 90-22.1 on any foreign accounts if the total is over $10,000. Note that you file the form directly with the Treasury, not with the IRS, though you can download the form from the IRS website.

The basis for the gain or loss on the sale of the asset (you could gain or lose money on the sale of the euros) is the date of death of her farther.

If she inherits cash, I don't think there is any need to worry about cost basis if she later converts that cash to dollars. That is a one-way exchange, so no gain/loss calculation applies as it would in a round-trip transaction. For example, when I earn yen, and later purchase dollars, this is not considered a taxable event, from what the IRS has told me. (To be precise, the earning yen part is of course taxable, but the later purchase of dollars at some different prevailing exchange rate is not a taxable event.) I think the inheritance discussed here would be treated similarly (though I could be wrong). If she inherits securities instead, then of course the cost basis at time of death applies.

By the way, Rich, if your wife decides to invest the money in Germany, she will probably want to avoid German mutual funds, for US tax reasons. Instead go for straight stocks, bonds, or other directly-held assets.

Bpp

 

[bpp]

A followup to what I said:

I think the inheritance discussed here would be treated similarly (though I could be wrong).

I realized that one possible difference between Rich's wife and me is that she is a resident of the US (I assume), so currency gains/losses are calculated relative to US dollars for her, while I am a resident of Japan, so gains/losses are calculated relative to yen for me. So buying dollars with yen is not a taxable event for me, but converting those dollars back to yen would be. For your wife's case, while the inheritance itself is probably not taxable, it might be that the change in exchange rates between the time of inheritance and the conversion to dollars (if she does that) could in fact lead to a taxable gain/loss event for her, even if the money were in cash at all times. The more I think about this, the less sure I am of how this works. Sorry if I have muddied the waters.

A good place to ask about situations like this is http://www.fairmark.com.

Bpp

 

[Rich]

OK, I did what I should have done before posting the question. I looked it up...

Anyway, according to the web site I located, "The short answer is that the United States does not impose inheritance taxes on bequests." So long as the decedent is not a resident of the US, and the beneficiary lives in the US, there is no tax imposed on inheritances brought into the United States.

Go figure. But thanks for all the input.