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Questions About Estate Tax

Do I Have To Pay Taxes On An Inheritance From A Foreign Relative?

by Rania Combs

If you have close relatives, like parents, who are citizens and residents of a foreign country, there is a chance you might receive a gift or inheritance from them at some point in your life. You may wonder whether you will have to pay taxes on an inheritance you receive from a foreign relative.

In the United States, those who receive gifts are not required to pay any gift taxes. The burden of paying the gift tax falls on the gift-giver. The same is true for those who receive an inheritance. The fact that the gift is from a foreign person is irrelevant.

Therefore, if you receive a monetary gift or an inheritance from relatives abroad, you will not have to pay taxes on it.

However, you must report the gift or inheritance to the IRS if the amount you receive exceeds a certain threshold.

Who Needs to Report an Inheritance From a Foreign Relative?

The IRS requires taxpayers to report:

  1. Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate); or
  2. Gifts valued at more than $16,076 got 2018 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).

Don’t Try to Fool the IRS

What if your parents abroad want to give you a monetary gift of over $100,000, but you don’t want to be burdened by the reporting requirements? Can you simply get each of them to make a gift less than $100,000 so you don’t have to report?

No. You must combine gifts from related parties. For example, if you receive a gift of $70,000 from your mom and $70,000 from your dad, who are Mexican citizens living in Mexico, you must report the gift because the combined gift totals more than $100,000.

How to Report a Gift or Inheritance

If you receive a gift or inheritance that exceeds these $100,000, the tax laws require you to file Form 3520 at the same time as your tax return for the year you received the gift.

If you do not file Form 3520 accurately or on time, you may be subject to penalties equal to 5% of the gift or bequest for each month during which the failure continues, up to a maximum of 25%.

For more information, visit the IRS’s website by clicking here.

Do I Need to Report an Inheritance If I Keep the Money in a Foreign Bank Account?

If you are a citizen, green card holder or resident alien with a financial interest in or signature authority over a bank account outside the United States with a balance that exceeded $10,000 at any time during the calendar year, you must file a Report of Foreign Bank and Financial Accounts (FBAR).

You can file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. This is not a form you file with your tax return.

You will not have to pay taxes on an inheritance you receive from a foreign relative, but you have a responsibility to report a gift or inheritance in certain situations. Always consult a tax attorney or tax professional for advice on your unique situation.

This article was originally posted on July 25, 2011, and updated on April 21, 2020.

Photo courtesy of and copyright Free Range Stock, www.freerangestock.com.


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Comments

  1. camus

    February 21, 2018 at 7:20pm

    your link above “clicking here” does not work

    1. Rania Combs

      February 23, 2018 at 6:43pm

      Thanks for letting me know. I’ve updated the link.

  2. Carl Wermer

    March 24, 2018 at 3:51pm

    Thank you for including this on your web site. I looked at the IRS documents also, and I realize they are the final say. However, it is very nice to have a place where there is summary that is easy to read (I live in Vt).

  3. AJ

    May 29, 2018 at 8:56am

    If me and my sister are receiving an inheritance cash value of approximately $120,000 USD total (that’s about 60K$ USD each) do we still have to file with IRS cosideing moneys are going to be wired from international bank account??

    1. Rania Combs

      May 29, 2018 at 9:42am

      According to the IRS guidance regarding gifts from foreign persons, gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) must be reported.

      Please consult with you CPA for advice on your individual reporting requirements.

  4. Tee

    July 27, 2018 at 12:22pm

    If my wife and I are resident aliens in the US gifting from our foreign asset to our resident US citizen children an amount higher than the value restrictions listed above, would I need to pay gift taxes to my home country and US?

    1. Rania Combs

      July 29, 2018 at 11:23am

      Please consult with your CPA for advice on your gift tax exposure in this situation.

  5. Kenny Cittell

    December 31, 2018 at 4:21am

    Hello Ms Combs:

    For stock and bond assets that are passed on by a Non-Resident of USA Parent to a beneficiary (Son/Daughter) in excess of the limits mentioned in 8938 or 3520 forms, does the US Taxpayer have to file BOTH 8938 as well as the 3520? Of course, the assets are still outside of the US, with taxes being paid in the local country. But, assets have changed name to the US Citizen (i.e. me) in this case. Although US and the Foreign Country have a treaty where Double Taxation is not imposed. Any guidance on this front would be great. Thanks.

    Kenny

    1. Rania Combs

      January 2, 2019 at 5:15pm

      I recommend that you seek guidance from a CPA to address this question.

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