Hi, I have inherited a couple properties in Korea. Also, I have paid over 20K on property acquisition tax. How do I report the inheritance and the tax I paid abroad?

[IsabellaG · Accepted solution]

You don't have to report the inheritances on your personal income tax return, because they are not taxable. Instead, make sure that you have an accurate valuation of these properties as of the date of death of the decedent, because that is considered to be your cost basis in an inherited property for when you sell it. 

If your property acquisition tax is a transfer tax paid to register the property in you name, it would be added to your cost basis in the property. You wouldn't take a deduction for it in the year that you pay it.

As SuperUsermaglib has indicated, some states have an inheritance tax, and you may have to file an inheritance tax return with your state.

See the answer below, along with the links provided. Form 3520 is not supported by TurboTax. It is an information return to report transsactions With Foreign Trusts and Receipt of Certain Foreign Gifts.

[Edit 03/05/18, 3:53 PM]

https://ttlc.intuit.com/replies/5725199

[maglib]

please see reporting requirements of fgn gifts and estates. <a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/gifts-from-foreign-person">https://www.irs.gov/businesses/gifts-from-...>

[maglib]

https://www.irs.gov/businesses/gifts-from-foreign-person  but depending on state, you may also have to file or pay an inheritance tax.  
The IRS inheritance tax requires the preparation of Form 706-CE https://www.irs.gov/forms-pubs/form-706-ce-certificate-of-payment-of-foreign-death-tax in order to report any foreign taxes paid on inheritances received.  This may have occurred when proceeds from a deceased person’s estate were received by an heir or beneficiary who resided in a foreign country at the time of death. The form facilitates the processing of a credit on the taxes of a citizen’s domestic return, in the amount of the taxes paid to a foreign country.

No Estate Tax on Overseas Inheritances

The IRS, however, does not impose a federal estate tax on inheritances received from overseas or a foreign country. Most all states also follow this guidance and also do not assess an estate tax on property inherited from overseas. The IRS requires the filing of an informational return regarding the receipt of the foreign asset, which is IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The form, which does not result in a tax, can be found via the IRS website.

There is no indication that any changes will be made by the IRS or Congress to begin taxing foreign estates or inheritances received by U.S. citizens. Efforts to recover taxes on amounts invested in off-shore trusts and accounts only relate to income earned in the United States that was hidden in these accounts for the purpose of avoiding income taxes and has nothing to do with overseas inheritances.