When the Inheritance Comes the Other Way

For many immigrant families the likelier direction is inbound: a parent in Kyiv, Pune, or Lyon leaves you something.

Report it.

An inheritance is not income (IRC §102, “Gifts and inheritances”), but more than $100,000 in a year from foreign individuals or estates goes on Form 3520 under IRC §6039F, “Notice of large gifts received from foreign persons”. Miss the filing and the penalty is 5% of the inheritance for each month, up to 25%.

Claim the step-up.

IRC §1014 asks whether you acquired property from a decedent and nothing about the decedent’s citizenship, so your US basis in a parent’s apartment or shares is the date-of-death value even though no US estate tax was due. Get the appraisal now, while anyone can still find comparable sales.

Sell the foreign funds.

Inherited foreign accounts go on your FBAR and Form 8938 (section “Foreign Accounts: FBAR and FATCA”), and inherited foreign mutual funds are PFICs from the day you own them (section “Foreign Mutual Funds and the PFIC Tax Minefield”). Sell them while the step-up keeps the gain close to zero.

Expect the parent’s country to tax you.

Some countries tax a nonresident heir directly. Ukraine charges 18% income tax plus a 5% military levy when a Ukrainian resident leaves property to a nonresident, payable before the notary will issue the inheritance certificate. The US treats that as a foreign income tax on an amount it does not tax (Treas. Reg. §1.861-20(d)(2)(iii)(B)), so the credit can offset only US tax on your other foreign earned or business income, carried forward ten years. For most heirs it is a cost.

Plan the exit.

Getting the money out can take longer than the probate. India lets a nonresident repatriate up to USD 1 million per financial year, April to March, from a non-resident ordinary (NRO) account or the sale of inherited property, against proof of inheritance, a chartered accountant’s certificate on Form 15CB, and Form 15CA (RBI master direction). Above that, the money waits for the next April or for the Reserve Bank’s approval. Check the parent’s country for a rule like it before you count on the money.

Fix your parents’ US holdings while they are alive.

The $60,000 rule applies to the estate of a parent who is neither a US citizen nor living in the US exactly as it does to a foreign heir’s. A US brokerage account full of US ETFs, or a Florida condo bought for visits, can cost that estate up to 40% above the threshold. Move the exposure into bank deposits, Treasuries, or funds domiciled outside the US.

Ask about expatriates.

A relative who gave up US citizenship or a long-held green card can make you, the recipient, owe 40% on what they leave you (section “Cross-Border Wrinkles”).