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Foreigner becomes a US citizen one week ago...Capital Gains
Posted by plundstedt on 05/19/2008 - 17:09
OK. So, I just got off the phone with the IRS. Spent over an hour transferred to six people and got nothing except a head ache.
So, a foreigner becomes a US citizen one week ago and decides to sell a painting in London for $1million. His cost basis was $12,500 from 30 years ago. And he is or was an art dealer.
What is his tax?
Is it unearned income?
Or is it inventory?
Collectable at 28%?
Pub 551 deals with alien status? Can his cost basis be the day he became a US citizen? Or does he just pay 28% on the sale minus the cost?
The IRS advance tax law area genius couldn't give me a straight answer.
Thank you
PL
peter lundstedt RIA, Greenwich
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Sell before you move.
Yup, the best answer was sell before he moved to the US. The tax would have been close to zero in the UK. Oh well.
The question hinges on whether this painting is in his personal collection or in his for-sale collection. If it was in his for-sale collection, it would have been listed on his website, his catalog, his (presumably UK-based) company inventory, or other documentary evidence of being for sale. If it used to be for sale, but was no longer for sale upon his arrival in the US, you can safely assume it was in his personal collection.
If it's in his personal collection, it's Sch D 28% rate.
If it's in his for sale collection, it's Sch C and don't forget self-employment tax.
As he appears to be a man of substantial net worth, be sure you haven't missed anything on his return: Form TD F 90-22.1 and all foreign income.
Liz Z, EA - London UK
thanks
thanks Liz