09.05.2023

Gifts and Inheritances from Nonresident Aliens: Why They’re Not Taxable in the U.S.

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When it comes to taxes, receiving a gift or inheritance from a nonresident alien can be a confusing subject for U.S. citizens and residents. However, it’s important to understand that these types of transfers are not subject to tax in the United States, as long as certain conditions are met.

First, it’s essential to understand the difference between a gift and an inheritance. A gift is a transfer of property from one person to another while the donor is still alive, while an inheritance is a transfer of property that occurs after the donor’s death. In both cases, the person receiving the property is not required to pay income tax on the value of the property received.

The reason for this is that the U.S. does not have gift or estate taxes on gifts or inheritances received from nonresident aliens. The gift tax is a federal tax that applies to transfers of property made by U.S. citizens and residents, while the estate tax is a federal tax on the transfer of a person’s estate upon their death. Neither of these taxes applies to gifts or inheritances received from nonresident aliens.

However, if a U.S. person receives a gift or inheritance that exceeds $100,000 in value from a nonresident alien, they are required to file Form 3520 with the IRS. This form is used to report certain foreign gifts and inheritances, and it must be filed by the due date of the U.S. person’s income tax return for the year in which the gift or inheritance was received.

It’s important to note that the $100,000 threshold applies to the total value of all gifts and inheritances received from the same nonresident alien during the calendar year. So, if a U.S. person receives multiple gifts or inheritances from the same nonresident alien during a year, and the total value of those gifts or inheritances exceeds $100,000, they must file Form 3520.

It’s also worth mentioning that the $100,000 threshold is based on the fair market value of the property received, not the amount of money actually received. For example, if a U.S. person receives a piece of property that is worth $120,000, but it was received as a gift from a nonresident alien, then the U.S. person must file Form 3520.

In summary, gifts and inheritances received by a U.S. person from a nonresident alien are not subject to tax in the United States. However, if the total value of gifts and inheritances received from the same nonresident alien during a calendar year exceeds $100,000, the U.S. person must file Form 3520 with the IRS. 

If you are unsure about your tax obligations regarding gifts and inheritances from nonresident aliens, our team is here to help. Contact us today to schedule a consultation and get the answers you need.

We recommend the following resources to learn more about reporting foreign gifts and inheritances:

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