Navigating the Tax Implications of Foreign Inheritance for US Citizens
Understanding the tax consequences of receiving a foreign inheritance can be confusing for many US citizens. At PCCI Tax, we help expats and US citizens worldwide stay compliant and maximize their financial security. This comprehensive guide will help you navigate the tax implications of receiving assets from abroad.
What Is Foreign Inheritance?
A foreign inheritance refers to assets or property received from a non-US resident. This can include:
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Cash: Money left to you by a foreign relative or benefactor
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Real estate: Houses or land inherited outside the United States
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Personal property: Cars, jewelry, art, and other valuables
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Investments: Stocks, bonds, or shares in foreign companies
IRS Rules on Foreign Inheritance
The IRS has specific rules for reporting foreign inheritance. US citizens and green card holders must report foreign financial assets exceeding $50,000 on Form 8938. In some cases, you may also need to file FinCEN Form 114 (FBAR) if your foreign bank accounts exceed $10,000.
Need help with reporting? Book a consultation with our expat tax experts.
IRS Form 3520: Required for Large Foreign Inheritances
If you receive a gift or inheritance from a foreign individual or estate that exceeds $100,000 in a calendar year, you are generally required to file IRS Form 3520, “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.”
Key facts:
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Who must file: US citizens and residents who receive foreign gifts/inheritances over $100,000.
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What to report: The total amount received from a non-US person or estate.
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No tax on the inheritance: Filing Form 3520 is an information reporting requirement—not a tax return—but penalties for not filing can be severe (up to 25% of the amount received).
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When to file: Form 3520 is due with your annual tax return (April 15, or with extensions).
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How to file: Form 3520 must be mailed to the IRS address listed in the instructions; it is not e-filed.
Inherited from a foreign trust? Additional reporting rules apply and may require filing even for smaller amounts.
Tax Consequences of Receiving Foreign Inheritance
Some important points to keep in mind:
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No Inheritance Tax for Beneficiaries: The US generally does not impose inheritance tax on beneficiaries of foreign estates.
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US Estate Tax May Apply: If the deceased was a US citizen or resident, their estate might be subject to US estate taxes.
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Capital Gains Tax: If you later sell inherited foreign property, you may owe capital gains tax on the profit.
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Income from Inherited Assets: Interest, dividends, or rental income from inherited property must be reported and may be taxed.
How to Report Foreign Inheritance
To stay compliant and avoid IRS penalties, follow these steps:
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Identify your inherited assets: List the type and value of each asset.
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Understand the rules: Review IRS guidelines for foreign inheritance and financial assets.
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File required forms: You may need to file:
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Form 3520 (for gifts/inheritances over $100,000)
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Form 8938 (for financial assets over $50,000)
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FinCEN Form 114 (FBAR) (for foreign bank accounts over $10,000)
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Get expert help: Unsure what to do? Book a consultation for personalized assistance.
Dealing With Foreign Tax Laws
The country where your inheritance originates may have its own tax rules and reporting requirements. It’s important to:
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Understand any local inheritance or estate taxes
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Gather official documents showing taxes paid abroad
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Avoid double taxation by leveraging US tax treaties when possible
Need support with international tax compliance? Contact us for guidance.
Final Thoughts
Dealing with a foreign inheritance as a US citizen can be complicated. With professional advice and careful planning, you can avoid costly mistakes and unnecessary taxes.
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