Foreign gifts are not taxable as income to you under U.S. federal law. Whether the money or property comes from a parent overseas, a foreign estate, or a company abroad, the value of the gift itself does not go on your tax return. What can catch you off guard is the paperwork: once a foreign gift crosses certain dollar thresholds, you have to disclose it to the IRS on Form 3520, and the penalty for skipping that filing runs up to 25% of the gift’s value.
Why the Gift Itself Isn’t Taxed
Section 102 of the Internal Revenue Code excludes the value of any gift, bequest, or inheritance from the recipient’s gross income.1Office of the Law Revision Counsel. 26 USC 102 Gifts and Inheritances Nothing in that rule changes when the donor lives abroad. Cash, real estate, stock, or anything else you receive as a gift arrives free of federal income tax.
The exclusion covers only the gift’s principal value. Any income the property generates afterward is fully taxable. Deposit a $150,000 cash gift into a savings account and the interest is reportable. Receive a rental property and the rent goes on your return. The IRS draws the line at the moment you take ownership of the asset.2Office of the Law Revision Counsel. 26 USC 102 Gifts and Inheritances – Section: Income
When You Have to Report a Foreign Gift
Disclosure kicks in at two different dollar levels depending on who is giving.
Gifts From Individuals or Foreign Estates
If you receive more than $100,000 in total from a nonresident alien individual or a foreign estate during the tax year, you must report the gifts on Form 3520.3Internal Revenue Service. Gifts From Foreign Person The threshold is measured per donor. One relative sending $80,000 and another sending $60,000 each falls below the line on its own.
But there’s an aggregation rule. If you know or have reason to know that multiple foreign donors are related to each other, or that one is acting as a nominee for another, you combine the amounts.4Internal Revenue Service. Instructions for Form 3520 – Section: Part IV Two siblings each sending you $60,000 total $120,000 and trigger the filing.
Gifts From Foreign Corporations or Partnerships
A much lower threshold applies to gifts from foreign corporations, foreign partnerships, or people related to those entities. For the 2026 tax year, the reporting trigger is $20,573, adjusted annually for inflation.5Internal Revenue Service. Rev Proc 2025-32 – Section: Notice of Large Gifts Received From Foreign Persons The lower bar reflects IRS concern that transfers from foreign business entities can blur into disguised compensation or distributions.
How to File Form 3520
Foreign gifts are reported in Part IV of Form 3520. You list the date of each transfer, a description of what you received, and the fair market value in U.S. dollars at the time of receipt.4Internal Revenue Service. Instructions for Form 3520 – Section: Part IV Recordkeeping through the year is easier than reconstructing everything in April.
The deadline tracks your individual income tax return, generally April 15. If you extend your Form 1040, your Form 3520 extends automatically.6Internal Revenue Service. Instructions for Form 3520 – Section: When and Where To File Form 3520 is mailed to the IRS Service Center at P.O. Box 409101, Ogden, UT 84409. It is not attached to your regular return, and there is currently no electronic filing option for the form itself, though the IRS does accept e-signatures. Certified mail gives you proof of timely filing.
Penalties for Not Filing
The penalty for missing a Form 3520 filing is 5% of the unreported gift amount for each month the disclosure is late, capped at 25%.7Internal Revenue Service. Instructions for Form 3520 – Section: Penalties On a $200,000 gift, the ceiling works out to $50,000 for a form that exists only for information reporting. No tax is owed on the gift itself.
You can avoid the penalty by showing reasonable cause. The showing must be in writing, with a signed declaration under penalties of perjury.8Internal Revenue Service. Failure to File Form 3520/3520-A Penalties Not knowing about the requirement rarely works. The IRS looks at whether you acted in good faith and exercised ordinary care given your circumstances, and it evaluates your conduct after any notice separately from what happened before. The most common way people escalate a manageable problem is by ignoring the first letter and letting the monthly penalties keep stacking.
Your Tax Bill When You Later Sell the Asset
The gift itself isn’t taxed, but selling the asset later usually is. Your starting point for calculating capital gains, called your cost basis, depends on whether you received the property as a gift or as an inheritance.
Gifts Carry Over the Donor’s Basis
Property you receive as a gift keeps the donor’s original cost basis, whether the donor is foreign or domestic. If your parent bought stock for $10,000 and gifted it to you when it was worth $50,000, your basis is $10,000. Sell for $60,000 and you owe capital gains tax on the $50,000 difference.9Office of the Law Revision Counsel. 26 USC 1015 Basis of Property Acquired by Gifts and Transfers in Trust
There is a twist when the donor’s basis is higher than the property’s fair market value on the date of the gift. If you later sell at a loss, your basis for calculating that loss is the fair market value on the gift date, not the donor’s higher original cost.9Office of the Law Revision Counsel. 26 USC 1015 Basis of Property Acquired by Gifts and Transfers in Trust Getting the donor’s original purchase records matters. If those records aren’t available, the burden of substantiating basis falls on you.
Inheritances Step Up to Date-of-Death Value
Property you inherit, including from a nonresident alien, generally receives a stepped-up basis equal to fair market value on the date of death.10Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent A home a relative abroad bought for $50,000 decades ago and worth $300,000 at death gives you a $300,000 basis. Appreciation before death is effectively never taxed.
This step-up applies even to foreign real estate that would not be part of the nonresident’s U.S. gross estate. The mechanism of transfer is what matters, not whether U.S. estate tax applied.
Does the Foreign Donor Owe U.S. Gift Tax?
You never owe U.S. gift tax as the recipient, but the foreign donor can owe it in a narrow set of situations. A nonresident alien who transfers U.S. real property or tangible personal property located in the United States is subject to U.S. gift tax on that transfer.11Internal Revenue Service. Gift Tax for Nonresidents Not Citizens of the United States Think U.S. real estate, vehicles, artwork, and jewelry physically here.
Gifts of U.S.-situated intangible property from a nonresident alien are not subject to U.S. gift tax. Stock in U.S. corporations falls outside the gift tax, and cash held in U.S. bank accounts is also generally treated as intangible for these purposes.11Internal Revenue Service. Gift Tax for Nonresidents Not Citizens of the United States Any gift tax obligation is the donor’s problem. Your job as the recipient stops at Form 3520.
Direct Payments for Tuition or Medical Care
Federal law carves out an unlimited exclusion for “qualified transfers,” which are payments made directly to an educational institution for tuition or to a medical provider for medical care. These payments are not treated as taxable gifts at all.12eCFR. 26 CFR 25.2503-6 Exclusion for Certain Qualified Transfer for Tuition or Medical Expenses
This can apply to foreign institutions. IRS regulations specifically illustrate a tuition payment made directly to a foreign university on someone’s behalf as qualifying.12eCFR. 26 CFR 25.2503-6 Exclusion for Certain Qualified Transfer for Tuition or Medical Expenses The requirement is that the payment go directly to the institution or provider. If a foreign relative sends you $40,000 with instructions to pay your tuition, that’s a gift to you, not a qualified transfer. The money must flow directly from donor to school.
Loans That Look Like Gifts
Cross-border transfers labeled as loans between family members get extra IRS scrutiny. A $150,000 “loan” from a foreign relative with no written agreement, no interest, and no realistic expectation of repayment can be recharacterized as a gift. That recharacterization can push you past the $100,000 threshold and force a Form 3520 filing.
To hold up as a genuine loan, the arrangement needs documentation matching what a real lending arrangement looks like: a written promissory note specifying principal, interest rate, repayment schedule, and maturity date. The rate must meet or exceed the IRS’s Applicable Federal Rate, which is published monthly. Loans carrying interest below the AFR fall under the below-market loan rules, which impute additional interest as a deemed gift from the lender to the borrower. A $10,000 de minimis exception applies to gift loans between individuals, so the imputed interest rules generally don’t apply when the outstanding balance stays at or below that amount.13Office of the Law Revision Counsel. 26 USC 7872 Treatment of Loans With Below-Market Interest Rates
Payment behavior matters as much as the paperwork. A well-drafted promissory note won’t save an arrangement in which payments are sporadic or never happen. Courts look at whether there was a real obligation to repay and whether both parties acted like repayment would actually be enforced.
Other Filings a Large Foreign Gift Can Trigger
If the money lands in or stays in a foreign account, two additional filings can apply. Both are separate from Form 3520 and neither replaces it.
FBAR
If you have a financial interest in or signature authority over foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year, you must file a Report of Foreign Bank and Financial Accounts (FinCEN Form 114) with the Financial Crimes Enforcement Network.14Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) A large foreign gift deposited into an account you already hold abroad can easily push the aggregate over the line. The FBAR is filed electronically and is due April 15, with an automatic extension to October 15.
Form 8938
If the total value of your specified foreign financial assets exceeds certain thresholds, you must attach Form 8938 to your income tax return. For unmarried taxpayers living in the United States, the trigger is $50,000 on the last day of the tax year or $75,000 at any point during the year. For married couples filing jointly, those figures double to $100,000 and $150,000.15Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets? Form 8938 covers a broader range of assets than the FBAR, including foreign stock and securities held outside a financial account, interests in foreign entities, and foreign financial instruments. The two forms overlap but are filed with different agencies under different rules, and you may need to file both.