Inherited DVC: FIRPTA Rules for Non-Resident Beneficiaries
If you inherited a DVC contract from a relative and you are not a US citizen or resident, selling that contract triggers FIRPTA withholding just like any other foreign sale. But there is an important tax benefit available to heirs: the stepped-up basis.
The Stepped-Up Basis
When you inherit property (including a DVC contract), your tax cost basis is generally stepped up to the fair market value of the property on the date of the original owner's death. This means if your relative purchased a DVC contract for $15,000 and it was worth $22,000 when they died, your cost basis is $22,000 — not $15,000. If you sell it for $22,000, your gain is zero and your tax is zero.
This stepped-up basis can dramatically reduce or eliminate the capital gain you would otherwise owe on the sale. In some cases, a beneficiary who sells inherited DVC at or near the date-of-death value owes no US tax at all, and can recover the entire 15% FIRPTA withholding through a refund.
Establishing the Date-of-Death Value
To use the stepped-up basis, you need to document the fair market value of the DVC contract on the date of death. A current resale price from a DVC resale marketplace (at or near the date of death) is often sufficient documentation. For larger contracts or higher-value sales, a formal appraisal provides stronger support.
FIRPTA Still Applies
Even with a stepped-up basis that eliminates your taxable gain, the closing agent must still withhold 15% at closing unless you have a withholding certificate (Form 8288-B) approved by the IRS. You get the withholding refunded when you file Form 1040-NR and show that your gain — and therefore your tax — is zero.
Estate and Probate Considerations
Inherited DVC contracts typically go through probate or a trust transfer before the beneficiary can sell. Make sure the title has been properly transferred to your name before listing the contract for sale. The closing agent will need to verify ownership. Contact a US probate attorney if you are unsure how to complete the title transfer from an estate.
