Gifts and Inheritances From Abroad — U.S. Tax Rules
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
A foreign gift or inheritance is money or property a U.S. person receives from a non-U.S. individual, estate, corporation, or partnership. The U.S. generally does not tax the recipient — gifts and bequests are not income — but it requires disclosure on Form 3520 once the amounts cross certain thresholds, and it taxes whatever the asset earns from that point on.
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Is a gift or inheritance from abroad taxable in the U.S.?
As a rule, no. The recipient of a gift or bequest doesn't pay U.S. income tax on it, wherever it comes from. U.S. gift and estate tax falls on the giver or the estate, and a non-U.S. person giving foreign property is outside that system. Exceptions exist — distributions from foreign trusts can be taxable, and some "gifts" are really compensation or distributions in disguise — but a parent abroad sending money to a U.S. child is not a taxable event for the child.
When does Form 3520 have to be filed?
When, during a calendar year, you receive:
- more than $100,000 in total from a nonresident alien individual or a foreign estate (related persons are aggregated), or
- more than a lower, inflation-adjusted threshold from a foreign corporation or partnership.
The form is filed separately from your return but is due on the same date, including extensions. It's an information return — no tax is computed on it. The penalty for filing late or not at all is 5% of the gift per month, up to 25%, which on a six-figure inheritance is a large number for a form that would have taken an hour.
What about inheritances specifically?
A bequest from a non-U.S. decedent is reported the same way, if over the threshold. The inherited asset generally takes a U.S. tax basis equal to its fair market value at the date of death, converted to dollars at that date's exchange rate — which usually means little or no U.S. capital gain if you sell soon after. Keep a valuation and the exchange rate; you'll need both when you sell.
What happens after I receive it?
The asset becomes yours, and ordinary U.S. rules take over:
- A foreign bank account that holds the money counts toward the FBAR and Form 8938 thresholds — often for the first time, since an inheritance can push a modest account over $10,000 overnight.
- Foreign property that you rent out goes on Schedule E; a sale is a U.S. capital gain computed in dollars.
- Foreign investments inherited in a brokerage account may be passive foreign investment companies, with Form 8621 reporting.
- A share of a foreign company may bring Form 5471.
Does my foreign relative have any U.S. filing?
Not for giving foreign property. A non-U.S. person owes U.S. gift tax only on gifts of U.S.-situs property such as U.S. real estate; cash wired from a foreign account is not U.S.-situs. If a U.S. citizen is the giver — sending money to family abroad — the U.S. gift tax rules apply to them as usual, including the annual exclusion and lifetime exemption, with a Form 709 when a gift to one person exceeds the annual amount.
What about gifts to or from a non-U.S. spouse?
Gifts to a non-citizen spouse don't get the unlimited marital deduction; instead there is a higher annual exclusion specific to non-citizen spouses, above which Form 709 is required. Gifts from a non-U.S. spouse to a U.S. spouse are foreign gifts, reportable on Form 3520 above the threshold like any other.
Frequently asked questions
My parents abroad send me money every year. Do I report it?
Only in a year the total from them (and other related givers) exceeds $100,000. Below that, nothing is filed — but it's worth keeping records of what was received and when.
I missed Form 3520 for an inheritance two years ago. What now?
File it late with a reasonable-cause statement. The IRS has eased some automatic penalty assessments for late-filed Form 3520, but a statement explaining the delay still matters.
Is money from a foreign trust the same?
No. Distributions from a foreign trust have their own Form 3520 reporting regardless of amount and can be taxable to you. Treat trusts as a separate question.
Does receiving a gift affect my foreign earned income exclusion or credits?
No. Gifts aren't income and don't enter those calculations.
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. If you've received — or expect — money or property from family abroad, our team can confirm what to report, when, and what the asset means for your return going forward. See pricing or book a free fit call.
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