What Happens If You Inherit Money From Another Country?

Inheriting money from another country generally does not create a U.S. income tax bill on what you receive, but it can create serious paperwork. Federal law excludes the value of property received by bequest or inheritance from gross income, and that rule applies whether the person who died lived in Cleveland or Kuala Lumpur. The catch is on the reporting side: if you receive more than $100,000 from a nonresident alien or a foreign estate in a single year, you owe the IRS an informational return, and skipping it can cost up to 25% of the inheritance in penalties.

The Principal Itself Is Not Taxable Income

Under 26 U.S.C. § 102, gross income does not include the value of property acquired by bequest, devise, or inheritance.¹ Citizenship of the person who died doesn’t change that. A $500,000 inheritance from a grandparent in Germany gets the same income-tax treatment as one from a grandparent in Chicago. In the U.S. system, estate and gift taxes fall on the person transferring wealth, not the person receiving it, and a nonresident alien’s worldwide estate generally sits outside U.S. estate-tax jurisdiction to begin with.

So on the principal, you owe nothing to the IRS. What you may owe is a form.

What Actually Gets Taxed

The exclusion covers only the value of what was inherited. Any income the assets generate after the date of death is yours to report. If the inherited funds sat in a foreign bank for several months earning interest before reaching you, that interest is taxable income.² Dividends on inherited stock and rental income from inherited property work the same way. Report them in the year you receive or accrue them.

Stepped-Up Basis on Inherited Property

When you inherit property, your cost basis generally resets to the fair market value on the date of death rather than what the decedent originally paid. This stepped-up basis applies to property acquired from any decedent, including a nonresident alien, under IRC § 1014.³ With foreign assets, the challenge is documenting that value. You may need a local appraisal, and the IRS looks for evidence like comparable sales on or near the date of death.⁴ Pin this number down early, because it determines your taxable gain if you ever sell.

Converting Foreign Currency to Dollars

Every amount on your U.S. tax return has to be expressed in dollars. The IRS has no official exchange rate but accepts any consistently used posted rate. As a general rule, convert using the spot rate on the date you receive the funds or accrue the item.⁵ For income earned across a full year, such as rental income from inherited foreign property, the IRS publishes yearly average rates you can use instead. Pick a method and stay with it.

Taxes Owed in the Foreign Country

Before a single dollar reaches your account, the country where the decedent lived may take its cut. Many nations impose an inheritance tax directly on the recipient, with rates that vary by country and by your relationship to the deceased. Close relatives often pay lower rates; distant heirs and unrelated beneficiaries can face steeper levies. Local probate fees and executor costs reduce the net further.

You might expect the U.S. foreign tax credit to offset those foreign taxes, but it generally doesn’t. The credit under IRC § 901 applies only to foreign income taxes, war profits taxes, and excess profits taxes.⁶ A foreign inheritance tax is not an income tax, so it doesn’t qualify. That matters less than it sounds, because the inheritance principal isn’t U.S. taxable income to begin with. There’s no U.S. income tax bill to offset.

The U.S. does maintain estate and gift tax treaties with about 15 countries, including Australia, Canada, France, Germany, Japan, and the United Kingdom.⁷ These treaties mostly come into play when the decedent owned assets located in the United States, because nonresident aliens face U.S. estate tax on U.S.-situs property with only a $60,000 exemption. If the decedent held no U.S.-based assets, a treaty is unlikely to affect your bottom line.

Form 3520: The Main Reporting Requirement

If you receive more than $100,000 in gifts or bequests from a nonresident alien individual or a foreign estate during the calendar year, you must file IRS Form 3520.⁸ The form asks for the date you received the funds, a description of the property, and the total fair market value in U.S. dollars. It’s purely informational. It does not generate a tax bill on the inherited principal.

A separate, much lower threshold applies to gifts or bequests from foreign corporations or foreign partnerships. That threshold was $19,570 in 2024 and adjusts annually for inflation.⁹ If the inheritance passes through a foreign business entity instead of coming directly from an individual or estate, check whether you’ve hit this smaller trigger.

Penalties for Missing Form 3520

The penalty for failing to report a foreign inheritance on Form 3520 is 5% of the amount for each month the failure continues, capping at 25%.¹⁰ On a $300,000 inheritance, that’s $15,000 a month up to a $75,000 cap. If you never file, the IRS can also independently determine the tax consequences of the receipt, stripping away your ability to characterize the transfer favorably. This is where most people get burned. Not by owing tax on the inheritance, but by missing a form they never knew existed.

Filing Deadline

Form 3520 is due April 15 for calendar-year filers and goes to the IRS Service Center in Ogden, Utah.¹¹ If you file Form 4868 to extend your individual income tax return, the Form 3520 deadline automatically extends to October 15. You don’t need a separate extension request for the 3520 itself; check box 1k on the form and enter “1040.”

FBAR: When the Money Lands in a Foreign Account

If your inherited funds sit in a foreign bank account and the aggregate value of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file FinCEN Form 114, commonly called the FBAR.¹² This is a Bank Secrecy Act requirement and is separate from your tax return. The form asks for the maximum value of each account, the bank’s name and address, and the account number.

The FBAR is filed electronically through FinCEN’s BSA E-Filing System, not by mail with your 1040.¹³ It’s due April 15, with an automatic extension to October 15 that requires no additional paperwork.

Penalties are heavy. For non-willful violations, the maximum civil penalty is $16,536 per violation as of the most recent inflation adjustment.¹⁴ Willful violations carry a civil penalty equal to the greater of an inflation-adjusted amount or 50% of the account balance at the time of the violation, plus possible criminal prosecution.¹³ Willful doesn’t require intent to evade tax. It can include knowingly ignoring a filing obligation you were aware of.

Form 8938: FATCA Reporting

If your specified foreign financial assets exceed certain thresholds, you may also need to file Form 8938 under the Foreign Account Tax Compliance Act. For single filers, reporting starts when total asset value exceeds $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 thresholds double to $100,000 and $150,000.¹⁵

Specified foreign financial assets include foreign bank accounts, foreign stocks, interests in foreign entities, and certain financial contracts. Foreign real estate you hold directly in your own name is not a specified foreign financial asset and does not go on Form 8938.¹⁶ If that real estate is held through a foreign entity like a company or trust, your interest in the entity is reportable.

The penalty for failing to file Form 8938 is $10,000, with additional penalties of up to $50,000 for continued failure after IRS notification.¹⁷ Form 8938 is filed with your income tax return, unlike the FBAR. You may end up reporting the same foreign account on both forms. They serve different agencies for different purposes.

If the Inheritance Comes Through a Foreign Trust

Inheriting through a foreign trust changes the picture significantly. Instead of a tax-free bequest, distributions from a foreign non-grantor trust are taxable to the extent of the trust’s distributable net income.² If the trust accumulated income over years before distributing to you, the throwback rules allocate that income across earlier years and can push your effective rate well above what you’d pay on a single year’s income. Unlike domestic trusts, beneficiaries of foreign trusts cannot use the exception that shields income accumulated before the beneficiary turned 21.

Reporting is also more demanding. You file Part III of Form 3520 to report any distribution from a foreign trust, and the penalty for failing to do so is the greater of $10,000 or 35% of the gross value of the distribution.¹¹ That 35% penalty is steeper than the 25% cap on direct inheritances. The trust should provide you with a Foreign Non-Grantor Trust Beneficiary Statement detailing how much of the distribution is taxable. If the trust doesn’t cooperate, the entire distribution may be treated as taxable income and subject to an interest charge. Talk to a tax professional before accepting the distribution.

If You Inherit Real Estate Abroad

A house or piece of land abroad creates complications that cash doesn’t. The inheritance itself is still excluded from gross income, and you still receive a stepped-up basis to fair market value at the date of death. But the property sits in a foreign legal system, and transferring title to your name often requires authenticating U.S. documents for use overseas. For countries party to the 1961 Hague Apostille Convention, you’ll need an apostille certificate from the U.S. Department of State or the relevant state’s secretary of state to validate documents like powers of attorney or identity certifications.¹⁸ If the foreign country requires translated documents, use a professional translator and have the translation notarized, but don’t notarize the original document itself.

Once the property is in your name, any rental income is taxable on your U.S. return, and you convert using either the spot rate or the IRS yearly average rate. If you sell, the gain is measured against your stepped-up basis. Keep detailed records of the original appraisal, any improvements, and the exchange rates used for each transaction. Directly held foreign real estate doesn’t go on Form 8938, but the initial inheritance still needs to be reported on Form 3520 if it exceeds the $100,000 threshold.

Moving the Money to a U.S. Bank Account

Most international transfers move through the SWIFT network, with the foreign bank sending funds directly to your domestic account. Your receiving bank will charge a wire fee for the incoming payment, and the foreign bank may charge its own outgoing fee. On top of that, banks typically mark up the exchange rate by 1% to 3% above the mid-market rate, which on a large inheritance can dwarf the flat wire fees. A 2% markup on a $200,000 transfer is $4,000. Shop rates across banks and transfer services before wiring.

Large incoming transfers trigger compliance reviews under anti-money laundering rules that financial institutions maintain under the USA PATRIOT Act.¹⁹ Your bank may temporarily hold the funds and ask for documentation proving the source. Copies of the death certificate, probate documents, and any foreign court orders authorizing the distribution will speed this along. The hold is routine for international transfers of any real size, and the documentation you already gathered for Form 3520 covers most of what the bank needs.

Which Forms Apply to You

Form 3520: required if you received more than $100,000 in bequests from a nonresident alien or foreign estate during the year, or more than roughly $20,000 from a foreign corporation or partnership. Due April 15 (October 15 with an income tax extension). Filed by mail to Ogden, Utah.
FBAR (FinCEN Form 114): required if the combined value of all your foreign financial accounts exceeded $10,000 at any time during the year. Due April 15 with automatic extension to October 15. Filed electronically through FinCEN’s BSA E-Filing System.
Form 8938: required if your specified foreign financial assets exceed $50,000 on December 31 or $75,000 at any point during the year (single filers), or $100,000/$150,000 for joint filers. Filed with your income tax return.
Form 3520, Part III: required if the inheritance came through a foreign trust rather than directly. Tax treatment and penalties differ substantially from a direct bequest.

Missing any one of these can cost thousands in penalties even though you owe zero income tax on the inheritance itself. The forms are not difficult once you know they exist, but the IRS doesn’t send reminders. If you inherited money from abroad this year and haven’t filed, get current before the IRS contacts you.

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Office of the Law Revision Counsel. 26 USC 102 – Gifts and Inheritances
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Internal Revenue Service. Foreign Trust Reporting Requirements and Tax Consequences
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Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
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Internal Revenue Service. Publication 551 – Basis of Assets
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Internal Revenue Service. Yearly Average Currency Exchange Rates
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Internal Revenue Service. Foreign Taxes That Qualify for the Foreign Tax Credit
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Internal Revenue Service. Estate and Gift Tax Treaties (International)
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Internal Revenue Service. Instructions for Form 3520 (Rev. December 2025)
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Internal Revenue Service. Gifts From Foreign Person
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Office of the Law Revision Counsel. 26 USC 6039F – Notice of Large Gifts Received From Foreign Persons
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Internal Revenue Service. Instructions for Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
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Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
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Financial Crimes Enforcement Network. BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114)
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eCFR. 31 CFR 1010.821 – Penalty Adjustment and Table
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Internal Revenue Service. Instructions for Form 8938 (Rev. November 2021)
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Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
17
eCFR. 26 CFR 1.6038D-8 – Penalties for Failure to Disclose
18
Travel.State.Gov. Preparing Your Document for an Apostille Certificate
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Financial Crimes Enforcement Network. USA PATRIOT Act