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.
Will I Owe Tax on Gift or Inheritance 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.
Do I need to Report a Gift or Foreign Inheritance to the IRS?
The IRS requires taxpayers to report gifts whose value crosses a certain threshold:
- 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
- Gifts valued at more than $17,339 for 2022 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).
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.
What Types of Gifts or Inheritance to Report to the IRS?
You are required to report any foreign inheritance you may receive, not only cash gifts. These include gifts such as:
- Cash in a foreign bank account
- Stocks
- International business ownership
- Real estate
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. The form is generally due on April 15 of the year in which you receive your 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.
Reporting requirements can be complex. If you have specific questions about how to report a gift or inheritance, seek the guidance of a tax professional or an attorney with expertise in international tax matters to ensure that you comply with all relevant laws and regulations for your unique situation.
This article was originally posted on July 25, 2011, and updated on May 8, 2023.
