Foreign inheritance tax: Is your inheritance taxable in the US?
If you’ve received an inheritance from abroad, you may be asking: Do I need to report this to the US? The short answer: It depends.
Even if no foreign inheritance tax is due, the Internal Revenue Service (IRS) has reporting rules you need to follow – or you could face penalties. Foreign inheritance reporting requirements also vary by state.
In this guide, we’ll break down when you need to report a foreign inheritance, which forms to file, and how to stay on the right side of both federal and state tax laws.
Do I have to pay US tax on foreign inheritances?
If you’re a US citizen or resident alien, you do not have to pay federal income tax on a foreign inheritance.
However, if the inherited assets generate income – such as interest or dividends – that income is subject to US income tax.
Some states may impose taxes on foreign inheritances – details on that below.
Do I have to report a foreign inheritance?
You must report foreign inheritance to the IRS if you receive more than $100,000 from a non-US resident alien. This also applies if you receive multiple inheritances that add up to $100,000 within a single year.
Failure to report your foreign inheritance to the IRS can lead to penalties of up to 25% of the inheritance's value. The agency takes these reporting requirements seriously, even though there is no direct tax on foreign inheritance itself.
If you inherit foreign bank or investment accounts, you may need to file FBAR and FATCA if the total value of those accounts exceeds certain thresholds.
Which forms do I need to submit?
When receiving a foreign inheritance, these are the most common forms you may need to file:
- Form 3520 is required when receiving foreign inheritance exceeding $100,000 in a calendar year.
- FBAR (FinCEN Form 114) is needed if the combined value of foreign bank accounts exceeds $10,000 on any day during the tax year.
- Form 8938 is required if foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point ($400,000 and $600,000 for married taxpayers filing jointly).
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Which states tax foreign inheritance?
While there is no federal inheritance tax, some US states do impose inheritance or estate taxes.
- Estate tax is a tax on the total value of everything a person owned when they died. This tax is paid by the estate itself, before anything is given to heirs.
- Inheritance tax is a tax on what each individual beneficiary receives. If you inherit money or property, you might have to pay this tax, depending on the state.
No US state imposes inheritance tax specifically on foreign inheritance if the decedent was not a resident or citizen of that state. Still, if you inherit US-based assets from a foreign decedent, state taxes might apply depending on where those assets are located.
Twelve states and Washington D.C. impose estate taxes based on the total value of the decedent’s estate before distributing it to heirs. Five states collect inheritance taxes, determining the tax based on the amount each heir receives. Starting January 1, 2025, Iowa no longer imposes an inheritance tax.
Spouses and lineal descendants are typically exempt from inheritance tax.
Below is a table outlining which states impose inheritance or estate taxes:
| State | Tax Type | Top Estate Tax Rate | Taxable Estate Threshold | Inheritance Tax Rate |
|---|---|---|---|---|
| Connecticut | Estate | 12% (flat) | $13.61 million | |
| Hawaii | Estate | 20% | $5.49 million | |
| Illinois | Estate | 16% | $4 million | |
| Iowa | Inheritance(phased out since Jan 1, 2025) | 0%-6% | ||
| Kentucky | Inheritance | 4%-16% | ||
| Maine | Estate | 12% | $6.8 million (indexed to inflation) | |
| Maryland | Both | 16% | $5 million | 10% |
| Massachusetts | Estate | 16% | $2 million | |
| Minnesota | Estate | 16% | $3 million | |
| Nebraska | Inheritance | 1%-15% | ||
| New Jersey | Inheritance | 11%-16% | ||
| New York | Estate | 16% | $6.94 million (adjusted for inflation) | |
| Oregon | Estate | 16% | $1 million | |
| Pennsylvania | Inheritance | 4.5%-15% | ||
| Rhode Island | Estate | 16% | $1.77 million (indexed to inflation) | |
| Vermont | Estate | 16% | $5 million | |
| Washington | Estate | 20% | $2.193 million (indexed to inflation) | |
| Washington, D.C. | Estate | 16% | $4.72 million (indexed to inflation) |
Sources: Tax Foundation, report Estate, Inheritance, and Gift Taxes in CT and Other States by Rute Pinho, Chief Legislative Analyst at the Office of Legislative Research (Connecticut); state statutes and tax department websites.
Also read. How to file taxes for a deceased person
Although you do not pay foreign inheritance tax on money or assets received from a non-US person, you still have reporting obligations. If you inherit foreign income-generating assets, you must also ensure compliance with US tax laws regarding that income.
Note that while most states do not tax foreign inheritance, inherited US assets might trigger state-level estate or inheritance tax.
At Taxes for Expats, our tax professionals have over 20 years of experience helping expats understand and fulfill their US tax obligations. Whether you need assistance with foreign inheritance tax rules or general tax compliance, we’re here to help.
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