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Question for the Money Doctors

Question submitted on Nov 20, 2012.

Question

An expatriate is gifting a piece of foreign property located in Mexico to her daughter who is a US citizen. Is the transaction taxable to the daughter? Would the answer change if the expat is still a US citizen but lives the majority of time in Mexico?

Answer

Gifting the property in Mexico will impose no U.S. tax implication to the daughter. Gift tax is incurred by the giver. In 2012, the annual gift exclusion is $13,000. This is going up to $14,000 in 2013. If the property exceeds that value - or if Mom gave additional gifts totaling more than $13,000 in 2012 – then she will have to file Form 709, United States Gift Tax Return. As a U.S. citizen, the rules for filing the gift tax return are the same, whether in this country or abroad.

It is likely that there will be no tax implication to Mom either. In addition to the annual exclusion, there is a lifetime gift exclusion of $5.12 million exempt from gift tax which is currently set to expire at December 31, 2012. Assuming the property in Mexico is worth less than that, no gift tax would be due. She will still need to file Form 709 for gift(s) with value exceeding the annual exclusion amount of $13,000 in 2012.

It would be wise to consult a Mexican tax and real estate attorney for possible tax issues in their country, as each country has their own rules regarding gifting of property, and tax implications thereof.


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