Foreign inheritance tax: US reporting requirements (2026)

Written by  Ines Zemelman, Accredited enrolled agent (EA), founder and President at TFX

Last updated Feb 06, 2026

The United States does not impose federal income tax on foreign inheritance received by US citizens or residents. In simple terms, money or property received from abroad is usually not taxed when it comes in. However, foreign inheritances over $100,000 must be reported to the IRS using Form 3520, and any income earned from inherited assets is taxable.

Key facts for 2026 filing (tax year 2025)

Brought to you by Taxes for Expats (TFX) – a top-rated tax firm serving Americans abroad. Need guidance on reporting your foreign inheritance to the IRS? Contact us, and we’ll walk you through the next steps.

Do I have to pay US tax on foreign inheritances?

No. US citizens do not pay federal income tax on foreign inheritance. The money or property you receive is not treated as income. However, income from inherited assets – such as interest, dividends, rent, or capital gains – is fully taxable once it is earned.

• A bequest from abroad is usually not counted as income when it is first received.
• A legacy from a foreign relative can still lead to US tax later, after the inheritance starts earning money.
• The gift vs inheritance distinction does not change the main rule – the inheritance itself is excluded, but new income is taxed.
• Beneficiary tax responsibilities begin when inherited assets create interest, dividends, rent, or capital gains.
• Do I have to pay tax on foreign inheritance? This often comes up when cash arrives from an estate distribution from overseas, even though the cash itself is usually not taxable.
• Those asking is foreign inheritance taxable? They are usually dealing with income earned after the inheritance, not the inheritance itself.
• A non-resident alien decedent does not change the federal income tax treatment – the inheritance is generally excluded, but later income is taxable.
• Keep records tied to any tax treaty documents, estate paperwork, and proof of income earned after the inheritance is received.

NOTE! A $250,000 inheritance arrives from a foreign estate in 2025. No federal income tax is owed just because the money was received. During 2025, the inherited assets earn $3,200 in interest and $800 in dividends, and an inherited property produces $12,000 in rent.

Those income amounts are taxable on the US return, even though the original $250,000 is not.

Do I have to report a foreign inheritance?

Yes, if over $100,000 from a foreign person or estate or above $20,116 from a foreign corporation. Penalties can reach up to 25% of the value.

• Over $100,000 from a foreign person or foreign estate (total received during 2025).
• Over $20,116 from a foreign corporation or foreign partnership (tax year 2025 reporting threshold).

A Form 3520 inheritance filing is an IRS information return used for foreign asset disclosure, even when no US tax is due on the transfer itself.

Inherited foreign accounts may also require FBAR and Form 8938 when balances cross their limits; FBAR supports anti-money laundering rules, and penalties differ for willful vs non-willful violations each year.

Behind on foreign inheritance reporting? Learn the streamlined path back to compliance

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Which forms do I need to submit?

A foreign inheritance can be simple, but US paperwork adds layers, so the right forms keep the filing clean today.

For the 2026 filing, the inheritance itself usually is not taxed, but the IRS still wants disclosure. Start with Form 3520 for large foreign gifts or bequests, then add FBAR and Form 8938 when foreign accounts or assets cross thresholds. Each form has its own compliance deadlines.

Form 3520

Form 3520 handles large foreign inheritances.

• File when the total 2025 gifts or bequests from a foreign individual or estate exceed $100,000, or $20,116 from foreign corporations or partnerships.
• Due April 15, 2026; for expats abroad, extensions can push the deadline to October 15.
• Penalty is 5% per month up to 25%, unless the IRS accepts a reasonable cause exception, with estate settlement papers.

FBAR

FBAR reporting kicks in when the combined highest balance of foreign accounts tops $10,000 at any time during 2025. The FBAR is due April 15, 2026, with an automatic extension to October 15, and filed through FinCEN.

Civil penalties include up to $10,000 for non-willful violations, while willful cases can reach the greater of $100,000 or 50% of account balances.

Form 8938

Form 8938 is FATCA (foreign financial account reporting for specified assets) attached to the Form 1040 return annually.

• Living abroad: file when specified foreign assets exceed $200,000 at year-end 2025 or $300,000 anytime ($400,000 or $600,000 on joint returns).
• Due with the tax return – April 15, 2026, or the extended due date; it supports beneficial ownership reporting efforts.
• Penalty starts at $10,000, then $10,000 per 30 days after IRS notice up to $60,000; keep clear documentation requirements for valuations and balances.

Schedule B

Schedule B Part III on Form 1040 supports foreign financial account reporting and flags foreign trusts. A “Yes” on line 7a points to FinCEN Form 114 and FBAR rules. Signed under penalties of perjury, so penalty abatement needs records.

Income from inherited foreign assets

Income from inherited assets is fully taxable. IRS Publication 525 explains that the inheritance itself is usually not included in income, but later earnings follow standard capital gains treatment.

Interest income taxation starts once the assets begin earning. An inherited foreign bank account can add filings beyond Form 1040.

Types of taxable income

Several income streams commonly arise once cross-border assets pass to a US taxpayer, and each follows standard US income rules.

• Dividends from foreign companies can arrive net of dividend withholding, yet the gross amount is generally taxable and reported as ordinary dividends on your US return.
• Rental income from foreign property is also taxable, and it usually belongs on Schedule E alongside deductible costs like repairs, taxes, and local management fees.
• Income inside an overseas investment portfolio may include PFIC holdings, and IRS Form 8621 rules apply when there are distributions or gains from those funds.

Basis and step-up rules

How the basis is set at inheritance directly affects future capital gains treatment and should be documented carefully.

• In many cases, step-up basis rules reset the basis to fair market value at the date of death, as described in IRS basis guidance.
• Later, capital gains from inherited property equal the sale price minus the basis, so a higher stepped-up value can shrink the gain.
• Foreign real property should be documented with appraisals and settlement papers to support the numbers used on Form 8949 and Schedule D.

Reporting and withholding

Passive income reporting usually means listing interest and dividends on your return, and tracking foreign tax withheld so credits and records line up. International securities held through a foreign broker can generate year-end statements that do not match US forms, so keeping trade confirmations helps reconcile amounts.

Cross-border assets often create timing and currency issues, so documenting exchange rates and dates makes later audits far easier.

Which states tax foreign inheritance?

State taxes only come into play when a US state has a clear legal connection to the decedent or the asset. For US expats, this section focuses on when state inheritance tax or estate rules matter – and when they do not.

Key points to know

• Estate tax applies to the total value of a decedent’s estate before assets pass to heirs.
• Inheritance tax applies to what each beneficiary receives and varies by state.
• State rules depend on in-state asset location, not the heir’s residence.
• Most states include a spousal exemption and a lineal descendant's exemption under their inheritance laws.
• The distinction between domicile and residence often determines whether a state-level estate tax applies.

No state taxes foreign inheritance from a non-resident foreign decedent.

Foreign inheritance reporting is one thing – state tax exposure is another. Know the rules.

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Below is a table outlining which states impose inheritance or estate taxes:

Where this fits for US expats: inheriting money abroad typically doesn’t create a state tax bill by itself. The state question usually becomes relevant only when the inheritance includes US real estate, a business interest, or other property anchored to a specific state.

Common documentation needed

A US expat receives an overseas bank transfer after a court completes the probate of a foreign estate, then needs the same set of basics to support the numbers and the narrative.

• Proof of inheritance (executor letter, estate distribution statement, or similar)
• Testamentary transfer documentation (will extract, probate decree, or estate accounting)
• Death certificate translation (and any required supporting certifications)
• Valuation documentation for non-cash assets (date-of-death values, appraisals, brokerage statements)
• Bank records showing receipt and movement of funds (helps tie totals to filings)
• Foreign currency conversion workpapers plus exchange rate documentation (rate source, date used, USD totals)

This inheritance reporting process stays straightforward when the paperwork is organized before the forms are started.

Do I have to report inheritance on my taxes?

Yes – must report if over $100K, but inheritance is not taxable.

• Reporting and paying are separate concepts under IRS transparency rules. Many foreign inheritances trigger information reporting vs tax liability, even when no tax is owed.
• The inheritance itself is treated as a non-taxable transfer, but the IRS still expects visibility through tax return disclosure when thresholds are crossed.
• Do you have to report inheritance on your taxes? Usually, reporting obligations apply even without income tax due.

Foreign inheritance reporting thresholds

NOTE! Form 3520 looks at the total value of foreign gifts or bequests received during the year, not individual transfers. FBAR uses the combined highest balance of all foreign accounts. Form 8938 applies its own asset-based aggregation rules.

This distinction explains why many US expats need to report inheritance on tax return filings even when no US income tax results from the inheritance itself.

Conclusion

Money or property received from a non-US person is not subject to foreign inheritance tax on the amount you receive. Even so, inheritance reporting applies when foreign gifts or bequests go over $100,000 in one year. Any income from inherited assets – like interest, rent, or investment gains – is usually taxable on a US tax return.

At Taxes for Expats, our tax professionals have helped expats with US tax rules for more than 20 years. We make foreign inheritance reporting clear and manageable.

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