Do I need to pay US income tax when selling an inherited house in a foreign country?

Yes, you absolutely need to report the sale on your US tax return, even though the property is in a foreign country. The good news is that since the property hasn't increased in value since you inherited it, you likely won't owe any US capital gains tax on the sale. When you inherit property, you receive what's called a "stepped-up basis" - meaning the property's tax basis becomes its fair market value at the date of death. If you sell it for the same amount as this stepped-up basis, there's no gain to tax. However, you still must report the transaction on Schedule D of your tax return. Be aware that you may owe taxes in the foreign country where the property is located. The US has tax treaties with many countries that can help avoid double taxation, but it depends on which country this is in.

I went through something similar last year with property in Spain. The documentation requirements were driving me crazy until I found this tool called taxr.ai (https://taxr.ai) that helped me figure out exactly what forms I needed to file. It analyzed my situation and gave me a complete checklist of all the IRS forms related to foreign property sales. The tool flagged that I needed to report on Schedule D, but also reminded me about Form 8938 requirements and explained exactly how the stepped-up basis works for inherited foreign property. It also identified which tax treaty provisions applied to my situation so I could avoid double taxation between the US and Spain.

I tried taxr.ai after seeing it mentioned here and wow - it was incredibly helpful for my situation with my Thai property! I uploaded the inheritance documents and sale agreement, and it immediately identified that I needed to report on Schedule D, file a Form 8938, and consider potential FBAR requirements. The best part was how it walked me through the stepped-up basis calculation and showed me exactly which parts of the US-Thailand tax treaty applied to my situation. I was able to avoid double taxation completely! The documentation guidance saved me hours of research and probably thousands in potential filing mistakes. Definitely recommend for anyone dealing with foreign property sales.

When I tried to call the IRS about a similar foreign property issue last year, I spent DAYS trying to get through to someone who could actually help. Finally used Claimyr (https://claimyr.com) and got connected to an IRS agent within 20 minutes who actually specialized in international tax issues. You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me an IRS callback and stayed on the line until I was connected with a real person. The agent walked me through exactly what forms I needed and how to report the sale of inherited property in Germany. Completely different experience than spending hours listening to hold music and getting disconnected.

I have to apologize for being so skeptical. After repeatedly failing to get through to the IRS about my foreign property issue, I finally tried Claimyr out of desperation. Couldn't believe it when I got a call back from an IRS international tax specialist in less than 3 hours! The agent clarified exactly how to report my UK property sale and confirmed I needed to file Schedule D with my stepped-up basis properly documented, plus Form 8938 since my total foreign assets exceeded the threshold. They even emailed me the specific IRS publications relevant to my situation. Saved me weeks of stress and potential penalties for incorrect filing. Sometimes it's worth admitting when you're wrong!

Don't forget about potential currency exchange issues! When we sold my wife's inherited property in Japan, we had to account for currency fluctuations between when we inherited it and when we sold it. Even though the property value in yen stayed the same, the dollar equivalent changed, which created a "phantom" capital gain.

One thing no one's mentioned yet - make sure to keep track of any expenses related to the sale! Lawyer fees, real estate commissions, transfer taxes in the foreign country, etc. Those can all be deducted from your proceeds to reduce any potential gain.

Great question! As someone who recently dealt with a similar situation involving inherited property in Canada, I can confirm what others have said about the stepped-up basis rules. Since you inherited the property at fair market value and are selling for essentially the same amount, you shouldn't have any capital gains tax liability. However, make sure you get proper documentation of the property's value at the time of inheritance - this becomes your basis for tax purposes. An official appraisal or comparable sales data from around the date of death will be important if the IRS ever questions your basis calculation. Also, don't forget to check if your wife's home country has any inheritance or transfer taxes that might apply to the sale. Some countries have withholding requirements on property sales by non-residents, even if the property was inherited. The timing of when you actually receive the sale proceeds could affect which tax year you need to report everything in. One last tip - if you're planning to keep the sale proceeds in a foreign account, make sure you understand the FBAR reporting thresholds. The $10,000 limit applies to the highest balance at any point during the year, not just year-end balances.