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IRS Rules On Foreign Inheritance

It is not unusual for foreigners to leave inheritance for their American kin. The greatest concern for Americans who receive this inheritance is that they may have to pay taxes on that inheritance. But in the United States you don’t have to pay tax for the inheritance.  All you must do is report the inheritance to the IRS if the amount exceeds $100,000. 

Assets In The United States And Foreign Relatives Domiciled In The US

You should understand that your inheritance will not be taxed only if the foreign relative does not live in the United States and is not a United States Citizen. Foreign nationals living in the USA with Green Cards and those without green cards are considered to be domiciled in the United States. However, if your inheritance is from a foreign relative that was living in a foreign country, no U.S estate tax will be imposed on the transfer of that inheritance, and no income tax will be imposed on inheritances brought to the United States. 

If the value of the inheritance exceeds $100,000, you need to report it by filing Form 3520 at the same time you file your tax return for the year. This form is not a tax return but is meant for information. People who do not file Form 3520 may face a penalty equal to 5 percent or 25 percent of the inheritance depending on a number of factors.

Keeping Inheritance In A Foreign Bank Account

Foreign Inheritance TaxationAmerican citizens and Green Card holders that have a foreign bank account balance that is more than $10,000, must file a Report of Foreign Bank and Financial Accounts (FBAR). This form can be filed electronically but you should not wait to file it with your tax returns. A tax attorney can look at your case and advise you on the best thing to do in your situation.

What About Gifts?

Any gift received from foreign nationals that are domiciled in the U.S. will be taxed regardless of where the asset is located. However, you can give a gift of up to $152,000 per year to your non-US citizen spouse without paying any tax. For gifts received from foreign nationals that do not live in the United States, the recipient does not have to pay the tax because the tax burden for that gift falls on the gift giver. But you will still have to report to the IRS if the value of the gift from a nonresident alien exceeds $100,000. 

Gifts coming from related parties that are nonresident aliens should be combined, and if the total exceeds $100,000 you should report it to the IRS. Avoid playing any tricks on the IRS. If the gift is from a corporation or foreign partnership, then you only need to report it if it has a value exceeding $16,076. You report a gift to the IRS by filing a Form 3520 accurately and on time. Consult a tax attorney any time you receive a gift or inheritance of significant amounts to avoid problems with the IRS.

 

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