Navigating property taxation in New Zealand post-inheritance requires understanding the absence of automatic basis step-up. Consultation with professionals versed in both U.S. and New Zealand tax laws is crucial to address complexities and optimise credits, ensuring accurate compliance in cross-border transactions.
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“I know this is a specialized area, but I’m throwing a line out to see if anyone has any information regarding taxes for a US citizen and resident who owns NZ property. Obviously, consulting with a US accountant and other consultants as well, but Reddit can be helpful for brainstorming and getting background information. One-half of the couple owning the property has passed away, and now the surviving spouse would like to sell the property. In the US, the surviving spouse would receive the deceased’s half of the property and get a step up in basis to fair market value for that half; is this the case for NZ? Are there estate tax concerns? Second, upon sale, I assume they will pay NZ tax and then report it in the US as well but use the foreign tax credit to offset. Does the death change that at all?”
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Property taxation can be complex in New Zealand, and it’s crucial to consider both New Zealand and U.S. tax implications. Here are some general points to consider:
Inheritance and Basis in New Zealand:
In New Zealand, there is no automatic step-up in basis for inherited property as there is in the U.S. When one owner of a jointly-owned property passes away, the surviving spouse does not necessarily receive a stepped-up basis for the deceased’s share. The tax implications will depend on New Zealand laws and the inheritance’s specific circumstances. It’s essential to understand how the New Zealand tax system treats inherited property and whether any exemptions or special provisions apply.
New Zealand Tax Considerations:
New Zealand imposes capital gains tax on certain property transactions, and the sale of the inherited property may trigger such taxation. The tax treatment can vary based on factors like the intention behind owning the property and the duration of ownership. The surviving spouse should consult with a New Zealand tax professional to assess the specific tax implications of selling the property, ensure compliance with local tax laws, and explore any available exemptions or reliefs.
U.S. Reporting and Foreign Tax Credit:
For U.S. tax purposes, the surviving spouse is required to report worldwide income, including income from the sale of foreign property. The foreign tax credit may be available to offset U.S. tax liabilities arising from the deal, but the interaction between U.S. and New Zealand tax laws, as well as the specifics of the property transaction, should be carefully considered. A U.S. tax professional with expertise in international tax matters can guide the surviving spouse through the reporting requirements and optimise the use of available tax credits.
Professional Consultation:
Given the complexity of the situation involving cross-border taxation, it’s highly advisable for the surviving spouse to consult with tax professionals proficient in both U.S. and New Zealand tax regulations. These professionals can provide personalised advice based on the individual’s circumstances, ensuring accurate compliance with tax laws in both jurisdictions. Additionally, they can help navigate the intricacies of any relevant tax treaties and assess whether any U.S. estate tax obligations apply based on the overall estate situation.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
