Tax Filing Forms for Inherited Foreign Non-US Property

April 28, 2021 by Carolyn Richardson, EA, MBA
Last Will and Testament

Thanks for the article "How do I put a 1099-S (inherited home sale) on my IRS taxes?" which is very helpful. I have a question, I inherited a property located in foreign country from non-US relative, do I need to file 1099-S?

Thanks in advance,
Lisa


Hello Lisa,

You asked whether you would need to file form 1099-S for the property you inherited from a relative who lives in a foreign country. As you mentioned, you didn't receive a Form 1099-S because the property is located in a foreign country. This form is a U.S. tax form and is not required to be filed by foreign persons or foreign trusts. In answer to your question, you do not need to file Form 1099-S. This form is normally filed by the seller of a property, not the person who receives it. It is normally issued during the escrow process (or similar legal proceeding to transfer the title) during the sale of property. It is not a form that is filed with your tax return, and it is similar to a Form 1099-INT or a Form 1099-MISC as it is a reporting form to report income that you receive.

If you sold the foreign property that you inherited, you will still need to report the sale on your federal tax return, even without receiving a Form 1099-S. Inherited property, foreign or domestic, would still receive a “step up” in basis. This means the “cost” would be equal to the fair market value of the property on the date your relative passed away. Any gain is treated as a long-term capital gain and is reported on Schedule D in your Form 1040.

However, you may also need to file Form 3520 to report the amount of the bequest from your relative. Form 3520 is used to report to the IRS that you received a gift or bequest from certain foreign persons. Generally, you would need to file this form if you received a gift or bequest valued at $100,000 or more. This form can be filed separately from your tax return and is due on the same date as your individual tax return. You would need to complete Part IV of the form, and possibly other parts of the form as well if your relative left this property to you via a foreign trust. Please visit the IRS website and search for “3520” to review the form and instructions to determine whether or not you are required to file this form. These forms are filed with the Ogden Service Center.

We hope this answers your question and thank you very much for asking it.

Best wishes,
Carolyn

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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