U.S. reporting requirements for inheritance
- Foreign national left you inheritance located abroad
- U.S. citizen or green card holder left you inheritance located in the U.S. or abroad
- Foreign national left you inheritance located in the United States (i.e.rental property or investment portfolio)
- A pension fund as part of an inheritance. How should I report it and will this generate tax due
Reporting requirements depend on whether the person who left you inheritance was a foreign national or U.S. person and it depends on the location of the estate.
Foreign national left you inheritance located abroad.
If the value of your share in inheritance is below $100K you do not have any reporting requirements before the IRS. If it is $100K or more then you have to file form 3520 at the same time when you file your U.S. tax return. The form is informational only. You will not owe tax. There is no U.S. tax on foreign inheritance. You will pay the capital gains tax when you sell the property if the sale price is higher than property value at the time of inheritance receipt.
U.S. citizen or green card holder left you inheritance located in the U.S. or abroad.
If you inherited foreign property from the U.S. person you do not have any filing obligations. You still do not pay federal tax but you may be subject to state inheritance tax if the estate was located in one of these U.S. states: PA, NJ, MD, KY, IA, NE. If inherited cash or property comes from one of those states you must report inheritance on the state inheritance tax form. If the value of the entire estate (not just your share) is over $5.45M then estate executor will pay the federal estate tax, which may reduce your share of estate distribution.
Foreign national left you inheritance located in the United States (i.e.rental property or investment portfolio).
In this case location of death determines tax consequences.
- If the foreign person died in the U.S. then treatment of the estate is a combination of case 1) and case 2) You still do not owe tax but you have to file form 3520 if the amount of inheritance is $100K or more.
- If the foreign person died abroad and left you inheritance located in the U.S.then first $60K of the entire value of the estate is tax free. Everything beyond that amount will be subject to estate tax payable by the estate executor. Tax may be reduced through tax treaties existing between the U.S. and resident country of the descendant.
A pension fund as part of an inheritance. How should I report it and will this generate tax due?
As pension consists of pre-tax funds that are supposed to be taxed upon distribution - this will be a taxable event. Any amount remaining in IRA or 401K will be taxed to the beneficiary. There are different tax consequences for the spouse or other beneficiary depending on the age of the beneficiary.
The bottom line - pension is taxable to the beneficiary as opposed to other inherited assets.
Please, report this asset on your TQ by browsing to Passive Income > Pension, then answer Yes to Did you receive pension distributions? question.