What Tax laws apply to money inherited overseas and wired from Pakistani bank towards home purchase in US?

Question

Hello everyone, Farrah had asked a similar question. If a family member that is a US Citizen or US Resident Alien and lives in Pakistan sends money that he or she inherited to another family member (brother or sister) so the family member in the US can pruchase a home for himself or herself, what tax law(s) apply in this situation? If taxes has been paid in Pakistan on that money, will the family memeber, who lives in the US. be also required to pay taxes in the US? I am not sure if gift tax applies in this case and if there is a way to reduce the amount of tax paid because I would hate to have my friend double taxed (in Pakistan and the US). Thank you.

Answer 1

As the person making the gift is a US citizen they will be required to file a Gift Tax return if any gift to any one individual exceeds $12,000 in any one year. There may or may not be any Gift Tax due, depending upon the giver's lifetime gifting history. On top of the annual $12,000 exemption per recipient there is a $1 million lifetime exclusion that will shield the donor from any gift taxes until it is used up. It's also important to note that that $1 million lifetime Gift Tax exclusion also reduces their Estate Tax exclusion dollar for dollar so it can impact the tax on their estate when they themselves die.

Whether or not any Pakistani taxes paid will affect the US Gift Tax due will probably depend upon any tax treaties in place between the US and Pakistan, if any.

As is always the case, the recipient of a gift never pays taxes on the gift. Since the gift is coming from an overseas source there are informational returns that must be filed but no tax is due if the facts clearly indicate that the funds are a bona-fide gift. Failure to file the required informational return (Form 3520) if due will attract substantial penalties even if no tax would have been otherwise due.

Answer 2

If the person giving the money is a US Person (US Citizen or resident, no matter where they live), they are subject to gift tax rules. IRS form 709. If the amount of the gift is more than $12000, the form is required. The amount over $12000 is a taxable gift, but there is a credit on the first $1Million in taxable gifts (after that, get out the checkbook). Keep in mind, when the person dies, if they have a US estate requirement, the taxable gifts are counted as part of the estate.

If the person giving the money is not a US Person, then the reporting requirement shifts to the recipient. If the amount is over $100,000, file IRS form 3520. (The cutoff is $13K if the money is coming from a trust.)

The recipient does not pay taxes on the gift. If the value of the house they purchase goes up, they are taxed only on the capital gains.

Answer 3

Yes they should be punished. while the rest of americans were out earning a living and paying tax the honest way these people are out there indulging in greed. If it wasnt for taxes we wouldnt have streets and highways or police or firemen .It was because of our taxes that our country had the resources on 911 to help our fallen americans that day in New York. Damn right these tax cheats need to be punished.