Am I liable for capital gains taxes? 2 Answers as of January 18, 2011

Is there a legal way to minimize capital gains taxes when selling a vacant lot in Germany, for example by using the proceeds to pay off the mortgage for our primary residence in the USA? Am I even liable for capital gains taxes - since I will not have to pay any taxes in Germany - or are the proceeds counted as regular income? My main problem is that I cannot determine what the true value of the lot was when it was gifted to me 26 years ago.

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Givner & Kaye
Givner & Kaye | Bruce Givner
Paying off a mortgage is not a deduction. As a U.S. citizen or resident you are liable for taxes to the U.S. government on your worldwide income or gains. If you cannot determine the basis (the donor's basis), then you must discuss with your CPA to determine how to proceed. Presumably you can only use your best estimate and include that information (that it is your best estimate) on your return.

Yes, there are ways to minimize capital gains taxes, even on an asset that is being sold in Germany. For example, you can trade that property for an investment property in the U.S.
Answer Applies to: California
Replied: 1/18/2011
Steven J. Fromm
Steven J. Fromm | Steven J. Fromm & Associates, P.C.
US citizens are taxed on their world wide income, so you must report this transaction on your Form 1040 individual return. Your basis for calculating gain is either the basis of the person who made the gift to you or if it was from an estate then the date of death value 26 years ago. If you cannot provide determine basis, then you have a zero basis if questioned by the IRS. One alternative would be to enter into a qualified like kind exchange under Section 1031. This is a complicated strategy that usually requires the use of a qualified intermediary and full compliance with the rules and regulations under Section 1031. Even with this strategy, the new property would take the basis you had in the Germany property. You need to discuss the details with a tax attorney.
Answer Applies to: Pennsylvania
Replied: 1/18/2011
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