Inheriting Property or Money in India: The US Tax Rules
Inherited ancestral land, gold, or bank accounts in India? Here's how the IRS treats foreign inheritance, the crucial Form 3520, and the step-up basis that saves you tax.
Vikram Shah
Updated May 20, 2026 · 9 min read
Inheriting assets in India while living in the US raises an anxious question: *"Will the IRS tax my inheritance?"* The reassuring headline is that inheritance itself is not taxable income in the US — you won't pay income tax just for receiving ancestral land, gold, or a bank balance. But there are critical reporting requirements (chiefly Form 3520) with severe penalties for missing them, and the cost basis rules determine what you'll owe later if you sell. Get the paperwork right and you protect your legacy; ignore it and a tax-free inheritance can spawn a five-figure penalty.
In a nutshell
Receiving an inheritance from India is not US income tax to you. But if foreign inheritances/gifts exceed $100,000 in a year, you must file Form 3520 (disclosure only). Inherited assets generally get a step-up in cost basis to fair market value at the date of death, which reduces future capital-gains tax when you sell. India has no inheritance tax, but selling inherited property later triggers Indian capital gains/TDS. Report the accounts on FBAR/FATCA.
Key takeaways
- Inheritance is not taxable income in the US — receiving it costs no income tax.
- Foreign inheritances/gifts over $100,000 in a year require [Form 3520](/articles/gifting-money-india-tax-implications) (disclosure, no tax).
- The Form 3520 penalty for non-filing reaches 25% of the amount — don't skip it.
- Inherited assets generally get a step-up in basis to value at the date of death, cutting future gains tax.
- India has no inheritance/estate tax, but selling inherited property triggers Indian capital gains/TDS.
- Inherited Indian accounts count toward FBAR/FATCA reporting.
Good news: inheritance isn't income
In the US, money or property you inherit is not taxable income. Whether you inherit ₹50 lakh in a bank account, ancestral land, or gold, you owe no US income tax simply for receiving it. The US estate tax is levied on the estate of the deceased, and when the deceased is a non-US person whose assets are outside the US (i.e., in India), the US estate tax generally doesn't apply either. So the inheritance arrives tax-free on the US side.
The catch: Form 3520 reporting
Tax-free does not mean report-free. If you receive more than $100,000 in gifts or inheritances from foreign persons during the year, you must file Form 3520 to disclose it. Key points:
- It's an information return — filing it creates no tax.
- The penalty for not filing is steep: up to 25% of the amount received.
- It's the same form used for large foreign gifts.
This is the single most important compliance step. A tax-free inheritance becomes a costly mistake only if you fail to disclose it.
Step-up in basis: the rule that saves you later
Here's the provision that matters when you eventually sell an inherited asset. For US tax purposes, inherited assets generally receive a step-up in cost basis to their fair market value on the date of death. That means:
- If you inherit property worth ₹1 crore at the date of death and later sell it for ₹1.1 crore, your US taxable gain is only the ₹10 lakh appreciation since death — not the gain since your ancestor originally bought it decades ago.
- Get a valuation of the asset as of the date of death and keep it — it's the basis you'll use.
Document the date-of-death value. Obtain a professional valuation (for property) or records of the market value (for shares/gold) as of the date of death. This establishes your stepped-up basis and can save enormous capital-gains tax when you sell. Without it, you may struggle to prove your basis to the IRS.
The India side
- India has no inheritance or estate tax, so inheriting itself triggers no Indian tax.
- Selling inherited property in India later does trigger Indian capital gains tax and TDS — and the holding period/cost often inherits the original owner's acquisition details under Indian rules.
- To bring proceeds to the US, follow the property repatriation process ($1M/year, Forms 15CA/15CB).
What to do when you inherit
- Don't panic — receiving the inheritance is not US-taxable.
- File Form 3520 if foreign gifts/inheritances exceed $100,000 that year.
- Get a date-of-death valuation to establish your stepped-up basis.
- Report any inherited Indian accounts on FBAR/FATCA.
- Plan the sale (if selling) for both Indian capital-gains tax and US reporting, with a DTAA credit.
Frequently asked questions
Do I pay US tax on an inheritance from India?
No income tax for receiving it, and US estate tax generally doesn't apply to foreign assets of a non-US decedent. But you may need to file Form 3520 to disclose inheritances over $100,000.
What is the penalty for not filing Form 3520?
Up to 25% of the amount received. The form itself creates no tax, but failing to file it is expensive, so always disclose large foreign inheritances.
What is step-up in basis?
For US purposes, inherited assets are valued at their fair market value at the date of death, so when you sell you're only taxed on appreciation since then — often a large tax saving.
What happens when I sell inherited Indian property?
India taxes the capital gain (with TDS), and you report it in the US too, claiming a DTAA foreign tax credit to avoid double taxation. Repatriate proceeds within the $1M/year limit.
The bottom line
A foreign inheritance is one of the gentler cross-border events tax-wise: no US income tax to receive it, no US estate tax on a non-US decedent's Indian assets, and a valuable step-up in basis when you eventually sell. The non-negotiable step is Form 3520 for amounts over $100,000 — skip it and a tax-free inheritance breeds a 25% penalty. Disclose properly, document the date-of-death value, report the accounts, and your legacy passes to you intact.