appraising inherited US real estate and also calculating capital gains tax on same property

[usian]

Curious to hear if any Americans here have experience with the following.

1) What does the Japanese government accept as a legal source for the value of inherited US real estate? Just a local (US) tax appraisal? Or something else?

(I've read something online that makes the process sound elaborate and expensive.)

2) Also what is considered the cost basis of the real estate when it is sold and capital gains taxes are calculated? HOPEFULLY NOT THE ORIGINAL PURCHASE PRICE almost 60 years ago.

(In the US the cost basis is the value at the time of death, as long as the property is sold within two years.)

(To clarify I’m a Japanese tax resident, US citizen, inheriting real estate from an American who never set foot in Japan.)

[captainspoke]

I've asked for priced investments like stocks, and the inheritor gets the stepped up basis.

While I'm not sure about real estate, it would surprise me if it was treated differently than that.

One source of value might be an appraisal. Apart from that another angle would be how the value is declared on your home country's taxes (US)--tho there may be no actual inheritance taxes on it there, you may have to declare it as property received on federal and state tax returns. IMO, it'd be hard to have one figure there, and another here. A complication might be assessed value (for ongoing taxes on the property). Assessed value is often a fraction of the 'real' price, and may only irregularly be updated. But as for how it would all turn out--good luck!

[usian]

Thanks for that. As you say, it makes sense that any capital gains tax would be on a step up basis.

Otherwise, it seems as if it would be double taxation. The inherited value would be taxed, and then after sale, the cash value would be taxed. If the inheritance were in cash, then just the inheritance tax would cover it, rather than having to pay again on the same amount.

But what I've read online (an accountant translating into English statements by the Japanese tax authorities) makes the actual standards and procedures seem vague and complex and up in the air. Like "We'll decide the details depending on what mood we're in."

I hate the idea of going to the tax office and having to do whatever random employee X happens to say on day Y. I equally hate the idea of hiring an accountant who may be happy to make the process more complicated than it has to be.

Anyway thanks again!

[Tkydon]

My reference says
Asset Valuation
Residential Land
Fair Market Value of the Land
Per Sq.m x Sq.m of the Land

Residential Property
The value of the house is calculated by multiplying the value of the house set forth for the purposes of property tax by a certain multiplier (currently 1.0)

Furnishings
Valued as if they were bought in their existing condition

Art and Curios (if any)
Valued by reference to similar sales or on the advice of specialists


Now, you can take the Inheritance Tax Allowance against the portion of the Total Estate that is inherited by Heirs in Japan.

If this is the only asset being inherited by an heir in Japan, then the full Inheritance Tax Allowance can be taken against this property value.

If this is not the only asset being inherited by heirs in Japan, then the Inheritance Tax Allowance can be taken against the total value of the assets being inherited by all heirs in Japan, and then distributed across the heirs in proportion to the proportion of the values of their inheritances.

The Inheritance Tax Allowance is
Y30,000,000 + (Y6,000,000 x No. of Heirs in Japan)

If just you, Y36,000,000 (approx US$ 330,000)

If the property is worth less than that, then no tax is due.

If the property is worth more than that, then that excess will be taxable at the following marginal rates

Up to 10M - 10%
10M to 30M - 15%
30M to 50M - 20%
50M to 100M - 30%
100M to 200M - 40%
200M to 300M - 45%
300M to 600M - 50%
Over 600M - 55%

[usian]

Thank you for the information.

Do you happen to know the answer to the second question?

"2) Also what is considered the cost basis of the real estate when it is sold and capital gains taxes are calculated? HOPEFULLY NOT THE ORIGINAL PURCHASE PRICE almost 60 years ago."

My understanding is that in Japan, the cost basis actually is the original purchase price, or 5% of the sale price if the original purchase price is not known.

That is, what I hoped was NOT the case. I would be happy to find out that it is calculated differently.

[usian]

I've asked for priced investments like stocks, and the inheritor gets the stepped up basis.

While I'm not sure about real estate, it would surprise me if it was treated differently than that.

HI, just re-reading your comment. Unfortunately, it does seem that real estate is taxed based on the original purchase price, or if that is not known, 5% of the sale price.

I also "found out" (though not completely sure) that that is how the cost basis of inherited stocks is calculated.

Regarding things like stocks, did a Japan tax official tell you differently?