sale of vacant land in Caribbean

[Ryndam]

I am a US citizen and about 10 years ago I bought a piece of land in the Caribbean. At the time, I placed my mom's name as the sole owner of it. She lives on the island but is a US citizen too. So legally, she owned it outright even though I paid for it. Now, she sold it in 2006 because it became a pain in having to keep it cleared of weeds and trees, etc. since it was in a residential area. She took a small fee for selling it and sent me the balanced. How would I handle it on my tax returns? Is it considered a sale of foreign property? Is it considered a gift? or whatever?

[Margaret]

From your description it appears to me as though you gifted this land to your mother 10 years ago. Did you file a gift tax return if needed? Now it seems as though she has gifted an amount of cash to you. Gift tax return on her part needed?

I would also suggest that she has a gain (assumed) on investment property with the basis of the gift to her from you. If she has to pay a tax in the country where it is, that would qualify for a foreign tax credit but, as a US citizen, the sale would have to be reported on her US return, too.

[Ryndam]

From your description it appears to me as though you gifted this land to your mother 10 years ago. Did you file a gift tax return if needed? Now it seems as though she has gifted an amount of cash to you. Gift tax return on her part needed?

I would also suggest that she has a gain (assumed) on investment property with the basis of the gift to her from you. If she has to pay a tax in the country where it is, that would qualify for a foreign tax credit but, as a US citizen, the sale would have to be reported on her US return, too.

Margaret:

That's one way to look at it as a gift.
Choosing another option, I wonder if it could work this way, making me the only one that has to file a return on the gain.

Say, I bought it for $20,000. It sold for $86,000. There was an understanding that even though it was placed in her name, she was holding it for me. Upon the sale, she just wired the money to me after the local govt converted it to US$. Could this be noted as a sale of foreign property with the basis being $20,000 and taking an adjustment for the fees and taxes?

Now, if I had to submit supporting documents, nowhere is my name listed, it was just an understanding.

[jainen]

have it both ways

There is a theory that recorded title only "memorializes" ownership and is not necessarily definitive. I think it is hard to apply in a practical sense.

If there were a specific contract (hopefully in writing) laying out your mother's role as a nominee, that position might have a chance. (Please don't construct such an understanding at this point and pretend it is ten years old.) Even then, the arrangement would only be binding between the two of you. It would not be effective for third parties (like the IRS) who had no constructive notice of the unrecorded title.

One has to wonder why you set it up that way. The most common reasons for concealing ownership are somewhat nefarious. The Caribbean is a fine place to practice voodoo economics, but even there common decency says you can't have it both ways.

[Joe Btfsplk]

I have a somewhat similar situation

A client's father had a Condo on Padre Island. The son was in a shaky business and the father wanted to give it to the son, but thought he might have legal problems due to the risky nature of his business that could result in confiscation of the property, so he left it to a daughter in his will.

The son has paid the Real Estate taxes on it for years and spends several months a year in the condo. His sister never comes to Padre Island. Now the son wants it in his name. The sister said it would go to him when she dies--which might be after he dies.

I suggested that he have an attorney look into having title transfered to him based on the law of adverse possession. I haven't seen the guy this year, so I'm not sure if anything was settled.