Tax expert: Taxes on inherited assets

Vol XXVII: My wife is a US citizen living for over 14 years in Israel. Her parents recently passed away and she stands to inherit a part of their estate. Is she subject to US taxes to the funds if they are transferred to her in Israel, or Israeli taxes, or both?

By MIRIAM VILNER
October 1, 2007 11:31
Tax expert: Taxes on inherited assets

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For Red Tape resources click here. Miriam Vilner is a licenced CPA (Isr.), a member of the Institute for Certified Public Accountants in Israel and a qualified Arbitrator registered with the Ministry of Justice. She holds degrees from London University and the Weizman Institute Send us your questions >> * * *

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  • Volumes XXIV-XXVI * * * Vol XXVIII Q: I believe you did not give a complete answer to the questions appearing 25 Oct. 1. will I still have to pay taxes every year to Israel (of course I will pay US taxes yearly)? If I do have to pay Israel taxes how do I do that? 2. I understand that US and Israel have tax treaty protecting me from paying double taxes so it might be that if I pay taxes in US I will NOT have to pay Israel taxes but do I still have to file tax paperwork to let Israel know that I do not own them anything? A: You are liable for taxes in Israel only if you are classified as a "resident". There is no clear cut definition for this only guidelines and will depend on the person assessing. How? If you are not here you are not liable and are not expected to send money from abroad.There may or may not be reckoning up when you come back. Q: I was told some time back that taxes for an oleh are a great deal more complicated, and possibly more expensive, if the oleh had a paying job prior to making aliyah. I'm currently a graduate student, and I plan to make aliyah after I finish school, but there will be some time in-between that I could potentially work. So i'm wondering if what I was told was/is true and to what extent. A: What you have heard is Nonsense. No employment will affect your immigrant rights. The only case in which activity prior to Aliya is relevant is for those who owned a business for at least 5 years and then, of course, the law is to their benefit. We have a booklet available on the Tax reform and how it affects new immigrants, revised 01/01/2007 for 150NIS + V.A.T. Good luck with your Aliyah. Q: Our 4 year old son just started in a special education kindergarten (gan safa). I believe we are entitled to concession points in income tax in our salaries. How can we do this? A: Yes you are entitled to tax concessions but not both of you, only one parent. I will outline the procedure but, initially at least, it is worth leting a professional deal with this. Since it is already November and you have not taken action during the year, the only way to get a tax concession is by filing a tax rebate form at the beginning of next year. Don't let fear of the income tax Authority stop you from filing this report. Tax rebate reports are opened and closed in the same year and there is no follow up. Our office would be happy to help you with this, our fees are considerabely less than the norm for this work. We would need the 106 forms for you and your wife. For the following years, you can either file a report at the end of every year as outlined for 2007. Or go to the Income tax Authorities (or send someone to represent you). Ask for a Te'um Mas taking into account the fact that your son is in a special education framework. On the surface, this may seem preferable to you BUT 1. If you give donations during the year, including Shul membership and/or 2. You pay life insurance or contribute to Provident funds (Kupot Gemel) on an independent basis not through your employer then it is preferable to file a tax rebate report once a year and to include all the reasons for concessions. The concession to which you are entitled comes to around 4,000 NIS a year providing you pay this amount in tax. There are no "presents", only rebates, on tax you have paid. To obtain the concession, you will require certain paperwork: 1. Report from the Va'adat Hasama, who directed your son to the special education stream. 2. A letter from the kindergarten authorising that he does, in fact, learn in a special education kindergartden 3. Form 127 filled out by a specialist such as a child neurologist giving a diagnosis ( they know what to do) 4. Form 116 - a declaration that you are the child's guardian (intended to prevent more than one person claiming tax concessions and required although it is mainly relevant when claiming for a disabled parent rather than a child. Q: I am a veteran Oleh considering a position to work at home in Israel for an American company on a strictly-commission basis. Expected earnings are $2000-$3000 per month. Do I have to pay taxes in both the states and in Israel/? How about Social security and Bituach Leumi? A: Thank you for your e-mail. Both the US and Israel (since 2003) define tax liability by the place of residence. 1. Since you are resident in israel, you are liable for tax in israel. 2. Since you are NOT a resident in the US AND since there is a treaty between israel and the US which rules out double taxation, you are not liable for tax in the US. However, you will be required to fill in a W8-BEN form for the IRS. All this your new employer should have told you. 3. You are, of course, required to pay Bituach Leumi in Israel. 4. I don't know anything about Social Security but I would venture to say that if you are allowed, not required, to pay into Social Security, it might be the best investment in your life. Q: My wife is a US citizen living for over 14 years in Israel. Her parents recently passed away and she stands to inherit a part of their estate. Is she subject to US taxes to the funds if they are transferred to her in Israel, or Israeli taxes, or both? My wife's mother came on Aliya nearly 3 years ago from the US. She passed away here last month. Her estate funds are in a US bank. Will this make any difference in the inheritance situation vis-a-vis taxes here and/or the US? A: I am a C.P.A. (Isr.) not a lawyer and not qualified in the U.S.A. Re Israel; There is no inheritance tax (yet?) 1. If you inherit money in the States and transfer it to Israel you are not liable for tax. There may be questions as to the source of the money and if it came from the sale of assets. 2. You will be liable for Capital Gains Tax in Israel. Since you and your wife are residents here, it is irrelevant whether the asset you inherited is here or abroad. It works like this: For an asset say real estate or stocks and bonds etc. you are not liable for inheritance tax on inheritance. However, the minute you sell the asset you are liable for Capital Gains Tax. In all probability the entire sum received will be considered real (as opposed to inflationary) capital gains and liable for taxation at 20% of the entire sum. Inflationary Capital Gains are recognized only on assets sold and bought in Shekels. For the purpose of calculating the Capital Gains on an inherited asset, the cost price is the original price paid by the deceased and not the cost of the asset on inheritance. This gives the State of Israel a method of compensation for the lack of Inheritance Tax - the lower the original cost, the higher the Capital Gains. If you wish to consult a lawyer familiar with both Israeli law and American Inheritance Law, we can arrange this for you but you would have to pay for the consultation. * * * Vol XXVII Q: Dear Miriam, I just made Aliyah and I was wondering if since an Oleh has 5 years to sell his/her assets such as stocks taxfree, is it worthwhile to sell those assets and then report them to the Israel Tax Authority on the fifth year after Aliyah or can an Oleh keep his assets for more then five years and write off the profits retroactively. Thank You. A: Hi and thank you for your e-mail. I'm afraid I don't quite understand what you are writing about and I also answer only tax questions not investment stategies. The questions must also be of general interest to be published in a newspaper. However, here are some general pointers: If you held stocks abroad prior to your Aliyah, you have a 10 year exemption from capital gains tax and after that a proportional exemption. Interest and dividends are also tax-free for 5 years but tax is usually deducted at source from dividends the world over and, of course, you cannot claim a refund in Israel for tax deducted abroad...What is "writing off profits retroactively"/ When you sell an asset, this is a taxable event, even if the tax rate is zero (for the first five years) In short: You have to report your dividends and interest, and the sale of assets and list them as exempt incomes when appropriate... But then what? Presumably you will reinvest the money and will then hold assets which were not in your possesion on the date of Aliyah and will be liable for the regular tax rate (20%) We have a booklet available on the Tax reform and how it affects new immigrants, revised 01/01/2007 for 150NIS + V.A.T. Good luck with your Aliyah. Q: I hope you can answer my questions. I am planning to immigrate to the US (I won a green card). When I leave Israel : 1. will I still have to pay taxes every year to Israel (of course I will pay US taxes yearly)? If I do have to pay Israel taxes how do I do that? 2. I understand that US and Israel have tax treaty protecting me from paying double taxes so it might be that if I pay taxes in US I will NOT have to pay Israel taxes but do I still have to file tax paperwork to let Israel know that I do not own them anything? Thank you in advance for any advice. A: Thank you for your e-mail. I apologise that I did not reply earlier but I have to give preference to questionsd of more general interest. As of 01/01/2003, taxation in Israel is on a geographical basis and not on a personal basis as it was prior to this date. You will not be liable for tax in Israel if you are not considered to be a resident by the Israeli tax authority. The double taxation treaty is to protect Israeli residents who have income from the US which is also taxed in the US. Further, taxation then depends on the source of the income: pensions cannot be taxed further, but interest or dividends on the capital market in the US will be taxed for an Israeli resident, taking into account the tax previously deducted in the US. All the above applies to individuals. Regarding companies and majority shareholders, the laws are different. Q: Shalom, Shana Tova uMetuka!Is it true that I can claim tax return from mas chasnasah for up to 7 years of donations? For example, if I made donations to eligible charities in 2004, 2005, 2006 and so on, then I can fill out my tax refund up to 2011 for donations done in 2004? Thanks in advance for your advice. A: Hi, thank you for your e-mail. You can claim a tax refund up to 6 years, providing you have not previously filed for that year. However you will not receive interest for all the years. In theory in 2007, you can file for 2001 and onwards. Why wait until 2011, laws in Israel always change. If you are interested in filing a tax refund report, you may contact me 050-4564049 or 03-5343727. Our fee is 15% of the refund. In theory, you can file your own report but you may end up with a bill to pay instead of a refund, dealings with the authorities should be done by experts. Q: I recently started a job in which I am a shadow for a special-ed kid. The mother pays me a check at the end of every month based on the amount for which I worked. She does not file taxes for me. I tried asking an accountant and he said it wasn't worthwhile for me to file taxes. Is it necessary for me to file taxes? I have no problem doing it on my own, but I have no idea how. If I did it on my own, how would I do it? A: Thank you for your e-mail. If you are a Metapelet, there is no need to report to the Tax Authorities. If your employer employs you in any field other than housework or child-care, they are obliged by law to open a deductions file and deduct tax at source. Theoretically, if they don't do this, you should register as self-employed, open files with all three authorities and give a Heshbonit every time you are paid, but it depends exactly what work you are doing. *** I have available a booklet on the new Tax Reform which outlines the various tax rates and exemptions for 150 NIS or $35. Miriam Vilner B.Sc. (Lond.), M.Sc., C.P.A. (Isr.) 03-5343727 050-4564049 Fax: 03-5345637 e-mail miriamcpa@012.net.il * * * Cafe Oleh experts have been chosen for their knowledge and reputation. Cafe Oleh does not take responsibility for any advice they offer. Click here to send us your questions for Miriam.
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