It may be income in US, Romania or both. If you pay taxes in both countries, you can claim a credit in the US for taxes paid in Romania.
I assume the house was seized by the government? Regarding US tax law, did you ever take a tax deduction when the house was seized, like a casualty loss? That will affect your outcome.
If you did not take a US tax deduction for the seizure, then I agree with @Critter-3 . You treat this as if you "sold" your home. When you sell your home, you pay capital gains tax on your gain, which is the difference between your cost basis and the selling price. In this case, your cost basis is the fair market value on the day the previous owner died. This would be taxed as a long term gain which has a lower tax rate than regular income.
Note that under US laws, legal settlements for property damage are taxable if they are more than your loss. For example, if a neighbor kid breaks your window and their parents pay you $200 but it only costs $150 to fix it, you have $50 of taxable income. So even under that theory, your property settlement with the Romanian government is taxable to the extent it is more than your loss, and under US law your loss is the value of the home when you inherited it.
