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U.S. reporting requirements for inheritance
U.S. reporting requirements for inheritance
Kirsten Simmons avatar
Written by Kirsten Simmons
Updated over a week ago

Table of contents:

Reporting requirements depend on whether the person who left your inheritance was a foreign national or a U.S., depending on the estate's location.

Foreign nationals left their inheritance 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, you must file Form 3520 while filing 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 the property value at the time of inheritance receipt.


U.S. citizen or Green Card holder left your inheritance in the U.S. or abroad

If you inherited foreign property from a 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, or NE. If inherited cash or property comes from one of those states, you must report the inheritance on the state inheritance tax form. If the entire estate's value (not just your share) is over $5.45M, then the estate executor will pay the federal estate tax, which may reduce your share of the estate distribution.


A foreign national left your inheritance in the United States, e.g., rental property or investment portfolio

In this case, the 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 must file form 3520 if the amount of inheritance is $100K or more.

  • If the foreign person died abroad and left your inheritance located in the U.S., the 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 the resident country of the descendant.


A pension fund is part of an inheritance

As a 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. Depending on the beneficiary's age, there are different tax consequences for the spouse or other beneficiary.

The bottom line - pension is taxable to the beneficiary as opposed to other inherited assets.

Please, report this asset on your Tax Questionnaire:

  1. Click the Configure Life & Income button on the left side.

  2. Click Yes next to I have retirement accounts or receive retirement income.

  3. Click Next Step and Submit.

  4. On Income > Passive income > Pension click Yes next to the question Did you receive U.S. retirement distributions?

To report non-U.S. distributions, click Yes next to the question Did you receive Foreign (i.e. non-U.S.) retirement distributions?

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