Expert: Henning Haarhaus - 3/2/2009

Question
My wife's mother passed and left us a property in Taiwan. The peoperty has been sold and we are wondering if the money from the sale is transfered to the U.S. do we have to pay income taxes on the money. The house was appraised after her death and the value of the sale was not aboue the appraised value. If we don't have to pay income taxes on the sale how do we document that to the irs? Any help is greatly appreciated. Thanks.

Answer
I am a German lawyer and unfortunately, I neither practice in American nor in Taiwanese tax law. Nor do I know if there is an international double taxation agreement between the two countries which would mitigate the effects of a taxation raised in both countries. However, I would think that in principal the issue is subject to the tax laws in both countries and that the tax paid in one country can be discounted from the tax burden levied in the other one.

As far as the taxation in Taiwan is concerned I found out the following informations on the web:

Gains for the sale of land are exempt from income tax but are taxed under the Land Value Increment Tax (LVIT). The tax base is the increased value of the property which is computed by deducting the acquisition costs and improvement costs from the property’s market value at the time of the transfer. The taxable gain is adjusted to take account the changes in the consumer price index. The rates of the land value increment tax range from 40% to 60%, depending on the taxable gain. For owner-occupied residential land, this tax is levied at a flat rate of 10% under certain conditions.

You can find a lot of informations on the Taiwanese taxation on the web if you type in "Taiwan" and "Land Value Increment Tax" and "Succession":

http://www.kctax.gov.tw/en/book10/10_06.aspx
http://www.dois.moea.gov.tw/tig/english/page.asp?class_id=2&page=32
http://www.khtb.gov.tw/english/Land_value_increment_tax.doc
http://english.iltb.gov.tw/onweb.jsp?webno=3333333313

and also a tax calculation programme
http://w4.kcg.gov.tw/landweb/land/e_callandtax.htm