I have questions regarding receiving a gift from an individual abroad (all referring to both the federal and the state level):If you receive money:Do you need to report it? With what form? (I believe it is with Form 3520 if greater than $100K.)Is that money taxable? (I believe it isn't.)Is there any difference between gift and inheritance?If you inherit land:Do you need to report it? With what form? (Form 3520 if greater than $100K again?)Is that money taxable? (I believe it isn't.)If you paid "inheritance tax", can you deduct in any way in your tax return?If you sell the land inherited:Do you need to report it? With what form? (1040, sch D?)Is that money taxable? (I believe it is.)Is the stepped-up basis counted on the date of death or on the date of transfer of ownership? (I believe in the US it is always automatic, so the stepped up basis is from the date of death, but there are more complicated cases where the transfer may be done in several steps, and therefore the transfer happens many months later. Would that move the basis to that date?)Thank you!

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Level 5

Question

Foreign inheritance / gift questions

Forum|Forum|4 years ago
March 17, 2022
2 replies
2 views

I have questions regarding receiving a gift from an individual abroad (all referring to both the federal and the state level):

If you receive money:

Do you need to report it? With what form? (I believe it is with Form 3520 if greater than $100K.)
Is that money taxable? (I believe it isn't.)
Is there any difference between gift and inheritance?

If you inherit land:

Do you need to report it? With what form? (Form 3520 if greater than $100K again?)
Is that money taxable? (I believe it isn't.)
If you paid "inheritance tax", can you deduct in any way in your tax return?

If you sell the land inherited:

Do you need to report it? With what form? (1040, sch D?)
Is that money taxable? (I believe it is.)
Is the stepped-up basis counted on the date of death or on the date of transfer of ownership? (I believe in the US it is always automatic, so the stepped up basis is from the date of death, but there are more complicated cases where the transfer may be done in several steps, and therefore the transfer happens many months later. Would that move the basis to that date?)

Thank you!

Not A Product Question

JulieS

Level 15

Yes, if you receive a gift worth $100,000 or more from a foreign person, you have to report it by filing Form 3520.

The receipt of cash as a gift or inheritance is not taxable.

If you inherited land worth $100,000 or more from a foreign person, you have to report it by filing Form 3520.

The receipt of the land is not taxable.

Inheritance taxes are only deductible on an estate tax return, so that would not apply.

You have to report the sale of the land in the year the sale occurs. It is reported on Form 8949 and Schedule D. If you have a gain, the gain is taxable, but it is a long term capital gain, so it has a lower tax rate.

You get a stepped up basis on foreign inherited assets. The basis is the value on the date of death, (or an alternate valuation date if elected by the executor).

The alternate valuation date only applies if a US Estate Tax Return is required, so that may not apply to this case.

The delay in transferring the assets does not change the basis.

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lameriAuthor

Level 5

Thank you very much for your answers. Now, more specifically:

Decedent had 3 other siblings. He dies year X without a will. His own parents' estate hasn't been distributed because decedent is in dispute with one sibling. When he dies, the other 3 siblings reach an agreement and divide equally the land from their parents' estate. Decedent has one child (alive) and one grandson (from a deceased child) who, according to local estate law, will each get 1/8 of the decedent's grandparents estate. However, it isn't until the end of year X+2 that both of the decedent's heirs get to know that the estate has been resolved in their favor. How can they reconcile the fact that they can no longer make the reporting on year X? Also, in the local country, appraisal is done by the government once a year whenever they want (there is no such thing as "date of death valuation"), would the value on year X be good enough?

RobertB4444

Level 15

Ok, @lameri, you asked two very distinct questions and I'm going to deal with them in reverse order.

The valuation for year X is just fine. Satisfies the requirement nicely.

The second question is more complicated. If the land was sold and then the proceeds were distributed to the heirs (one eighth, as you say) then the heirs had nothing to do with the sale of the land. They received an inheritance of cash and if it is over $100,000 and they are US residents or citizens they will report it on form 3520. The sale of the land does not enter into consideration because only cash was received by the heirs. No taxable event has occurred.

If they received a piece of the land (again, one eighth) then, like @JulieS says above, no taxable event occurs when they get the land, only when they sell it. And if they didn't find out until X+2 that they had received the property then they actually got it in X+2 (The basis is still the valuation from X, though). So the 3520 is due in X+2, not X.

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ErnieS0

Level 15

No. The child could not have deducted any inheritance tax. Inheritance taxes are deducted on Form 706, the US estate tax return.

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lameriAuthor

Level 5

@ErnieS0 Sorry I didn't make myself clear: Both the child and the grandchild paid "inheritance tax" to the foreign country for it to process the inheritance (that happened year X+1). Additionally, the child filed an estate return for decedent's estate. Is there any way for them to recover/deduct the money both child and grandchild paid as "inheritance tax" to the foreign government? Or is that "lost money" as far as US taxation is concerned? Should the child have reported it in the "estate tax return" (Form 706) that you mention? Since the decedent was no longer living in the US and had no interests here, the child reported just 0.

Thank you.

RobertB4444

Level 15

@lameri These two people are only reporting the money that they received. They are not paying taxes on it here. So there is no tax deduction since there are no taxes.

If the two recipients only received cash and didn't receive a title to the land then they never received the land. They didn't have control over it - they didn't have it. They just report the money that they received - AFTER the foreign taxes were taken out - on form 3520.

There are no credits for the inheritance taxes paid either.

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