Are US Citizens Taxed on Foreign Inheritances?

With our mobile world, US citizens often ask whether they are taxed on inheritances received from people living in foreign countries. Many clients are understandably confused about whether the IRS taxes money or property they inherit from relatives living overseas.

The good news is that, in most situations, a foreign inheritance is not taxable income to a U.S. citizen. Under Section 102 of the Internal Revenue Code, inheritances are not taxable income to US citizens, even where the inheritance comes from outside the United States. This means that receiving cash, securities, or property from a non‑U.S. decedent typically does not create an immediate federal income tax liability.

However, there are some exceptions. One exception is income generated by inherited foreign assets.  Where the inheritance includes:

• foreign bank accounts
• foreign securities
• rental property abroad
• business interests abroad

then all income earned whether it be interest, dividends, rents, gains on sales of such interests is taxable to the U.S. beneficiary.

This is often misunderstood by clients.

It is important to note that there may be important reporting requirements that must be kept in mind.  While the inheritance itself may be tax‑free, the reporting requirements can be significant. U.S. citizens who receive foreign gifts or inheritances above certain thresholds may need to file Form 3520, an informational return that alerts the IRS to large transfers from foreign persons or estates. Failure to file Form 3520 when required can result in substantial penalties, even though no income tax is owed on the inheritance itself.

If the inherited assets are held in a foreign financial account, the beneficiary may also need to file FBAR (FinCEN Form 114) or FATCA Form 8938, depending on account values. For more insights into this topic see When Do I Need to File IRS Form 8938, Statement of Specified Foreign Financial Assets? For a related article please see Foreign Taxation: Including FBARs, FATCA and Offshore Voluntary Disclosure Initiatives & More

If the inheritance includes foreign real estate or business interests, additional reporting or valuation issues may arise. Proper documentation is essential to avoid IRS scrutiny.

For these reasons, while foreign inheritances are generally not taxed, they often require careful compliance. Consulting with an experienced tax attorney ensures that you meet all reporting obligations and avoid unnecessary penalties.

If the foreign inheritance is to be paid to a decedent’s estate, and the estate must be administered in Pennsylvania, our Estate and Probate Administration Services page explains the full probate process and the responsibilities of executors and administrators. The executor or administrator would be subject to all of the above tax rules and compliance details.

© 2026 Steven J. Fromm & Associates, P.C.