This holiday season you may benefit from large gifts or an inheritance from relatives who are citizens of another country. First, the good news - the United States government does not impose a tax liability on the recipient of gifts or inheritances regardless of the donor’s immigration status.
While the donor, if a US citizen or legal resident may be required to pay estate and/or gift taxes, foreign nationals are not required. No gift tax applies to gifts from foreign nationals if those gifts are not situated in the U.S. There are two rules to note that apply to money or property coming from abroad:
1. If you receive more than $100,000 from a foreign estate or non-resident alien in one tax year, you must file a special tax form with the IRS. The amount refers to total gifts from all sources abroad, not per individual donor.
2. If you receive more than $16,649 from a foreign corporation or partnership, you must report the gift and the identity of the donor.
The required IRS form is Form 3520 and can be found on the IRS website. This form is filed separately from your income tax returns, but the filing date (April 15) is the same. If you fail to report this income and file this form by its due date, the IRS can enforce a 35% financial penalty.
Keep in mind that the taxes discussed above are estate and gift taxes. You may not find yourself as lucky when it comes to income taxes. Federal income taxes may be owed on foreign assets, even if it is not derived from U.S. situs property, since the IRS taxes worldwide income. This applies only to assets that produce monetary income, not the value of the asset itself.
The first step in determining whether you must report your foreign gift or bequest to the IRS is to determine whether the cash or property received is income or if it can be characterized as a gift.
Income would be reported as income on your personal income tax return. Income represented by a foreign currency should be translated into U.S. dollars at the applicable exchange rate. Foreign bequests and gifts will be reported on the Form 3520.
For more information on planned gifting or the consequences of receiving gifts and inheritances, contact the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599, emailing us at office@stoufferlegal.com, or register for an upcoming free webinar using the link below:
https://attendee.gotowebinar.com/register/3615431045643044364
https://attendee.gotowebinar.com/register/5502063256534593804
https://attendee.gotowebinar.com/register/6502858531326280719
