Table of Contents
Key Summary
Do you have to pay taxes on inheritance from India? No, inherited property in India is not subject to US income tax when received. You must report inheritances over $100,000 on Form 3520, but this is an information return only—no tax is due on the inheritance itself. Do I have to pay US taxes on foreign inheritance? The inheritance itself is not taxable. However, income generated after inheritance (rental income, dividends, interest) and capital gains from selling inherited property are taxable on your US return with foreign tax credits available. What is the US inheritance tax rate? The US has no federal inheritance tax. The estate tax exemption is $15 million per person for 2026. Heirs receiving inheritances do not pay federal tax on inherited amounts. What is inheritance tax for non-US citizens? Non-US citizens inheriting US assets face estate tax with only a $60,000 exemption. However, US citizens inheriting foreign property face no US inheritance tax regardless of amount. When do I file Form 3520 for inheritance? File Form 3520 with your tax return by April 15 (June 15 for expats) following the year you received the inheritance.
Inherited property in India is not taxable when you receive it. You must report inheritances exceeding $100,000 on Form 3520 but pay zero tax. Future income (rent, interest) and capital gains from selling the property are taxable in both India and the US. You get a step-up in basis to fair market value on the date of death for US tax purposes, but India uses the original owner's cost with indexation. Report inherited Indian bank accounts on FBAR if balances exceed $10,000.
Inheriting property in India creates immediate questions about US tax obligations. Your parents left you their Mumbai apartment, your grandfather's agricultural land passed to you, or you received a share in family property. Now you're wondering whether the IRS will tax this inheritance, what forms you need to file, and how much you'll owe when you eventually sell.
Without understanding inherited property in India tax rules, you risk failing to report the inheritance and facing $10,000+ penalties, losing valuable step-up basis benefits when calculating capital gains, paying double taxation without claiming foreign tax credits, and triggering FBAR penalties for unreported Indian accounts.
In this article you will learn whether you have to pay taxes on inheritance from India, how Form 3520 reporting works for foreign inheritances, what happens when you sell inherited property in India, how step-up basis differs between India and US tax rules, and whether you need to report inherited property on FBAR and Form 8938.
Do you have to pay taxes on inheritance from India?
The simple answer: inherited property in India is not subject to US income tax when you receive it.
The inheritance itself is tax-free
The United States does not impose income tax on inheritances received by heirs, regardless of whether the inheritance comes from domestic or foreign sources. This applies to cash inheritances, inherited property (real estate, land, apartments), inherited bank accounts, inherited investment accounts, and inherited business interests.
Example: Your parents in India leave you their Mumbai apartment valued at ?2 crore (approximately $240,000). You inherit this property tax-free in the US. The $240,000 value is not added to your taxable income.
What becomes taxable?
While the inheritance itself is tax-free, income generated after you inherit becomes taxable. Rental income from inherited property is taxable on your US return. Investment income (interest, dividends, capital gains) from inherited accounts is taxable. When you sell inherited property, capital gains tax applies in both India and the US.
India does not tax inheritances
India abolished estate duty (inheritance tax) in 1985. Receiving an inheritance in India triggers no Indian tax liability. However, when you sell inherited property, capital gains tax applies in India.
How can I report foreign inheritances on Form 3520?
Understanding Form 3520 requirements is critical for compliance when inheriting property in India.
When you must file Form 3520
You must file Form 3520 if you receive more than $100,000 in aggregate from a foreign person or foreign estate, or more than $20,116 from a foreign corporation or partnership during the tax year.
Example: You inherit your father's Mumbai apartment (?1.5 crore/$180,000) and ?10 lakh ($12,000) in his bank account, totaling $192,000. You must file Form 3520 because the total exceeds $100,000.
What Form 3520 reports
Form 3520 is an information return only—it does not calculate or assess any tax. The form reports the identity of the person from whom you inherited (name, address, relationship), fair market value of the inheritance in US dollars on the date of death, description of property or assets inherited, and date you received the inheritance.
What are Form 3520 filing deadlines and penalties?
File Form 3520 with your Form 1040 by April 15 following the year you received the inheritance (June 15 if you're living abroad with automatic extension). Failure to file triggers 5% of the inheritance value per month if the form is late, up to a maximum penalty of 25% of the inheritance value, with a minimum penalty of $10,000.
|
Inheritance Value |
Monthly Penalty (5%) |
Maximum Penalty (25%) |
|
$120,000 |
$6,000 |
$30,000 |
|
$200,000 |
$10,000 |
$50,000 |
|
$500,000 |
$25,000 |
$125,000 |
What are the tax implications for Selling inherited property in India?
When you sell inherited property in India, tax implications arise in both countries. India imposes capital gains tax when you sell inherited property. Property held more than 24 months qualifies as long-term. For property acquired before July 23, 2024, you can choose 20% tax with indexation benefit or 12.5% without indexation. For property acquired on or after July 23, 2024, the rate is 12.5% without indexation.
Cost basis in India: For inherited property, the cost of acquisition is the original owner's (deceased person's) cost, not the fair market value at death. You can apply indexation from the year the original owner acquired the property.
Example: Your father purchased property in 2005 for ?50 lakh. He passed away in 2020 when the property was worth ?1.5 crore. You sell it in 2026 for ?2 crore. For India tax purposes, your cost basis is ?50 lakh (indexed from 2005), not the ?1.5 crore value at death.
What is the US capital gains tax on inherited property?
The US also taxes capital gains when you sell inherited property, but uses a different cost basis calculation. For US tax purposes, inherited property receives a "step-up" in basis to the fair market value on the date of death. This significantly reduces or eliminates US capital gains tax.
Example: Using the same facts, for US tax purposes your cost basis is ?1.5 crore (approximately $180,000)—the fair market value when your father died. You sell for ?2 crore ($240,000). Your US taxable gain is only $60,000, not the much larger gain calculated under Indian rules.
How can I prevent double taxation?
You pay capital gains tax in both India and the US, but the India-US tax treaty prevents double taxation through foreign tax credits. Calculate capital gains tax owed in India and pay it. Report the sale on your US tax return (Schedule D). Claim foreign tax credit on Form 1116 for Indian capital gains tax paid. The credit reduces your US tax liability dollar-for-dollar.
FBAR and Form 8938: Reporting inherited accounts
Inheriting property in India often includes inheriting bank accounts, which trigger additional US reporting requirements.
FBAR for inherited Indian accounts
You must file FBAR (Foreign Bank Account Report) if the aggregate value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. This includes inherited NRE accounts, NRO accounts, savings accounts, fixed deposits, and investment accounts.
Your FBAR obligation begins as soon as you inherit the account, or even earlier if you had signature authority on the account before inheritance.
File FBAR by April 15 with automatic extension to October 15 through the FinCEN BSA E-Filing System. Penalty for non-filing: up to $16,536 per report per year for non-willful violations.
Form 8938 for inherited foreign assets
Form 8938 (FATCA reporting) is required if your specified foreign financial assets exceed reporting thresholds. For US residents: $50,000 on the last day of the year or $75,000 at any time (single filers). For expats living abroad: $200,000 on the last day or $300,000 at any time (single filers).
File Form 8938 with your Form 1040 by April 15 (June 15 for expats). Penalty: $10,000 for failure to file, increasing by $10,000 every 30 days after IRS notice up to $60,000 maximum.
Comparison: India vs. US tax treatment of inherited property
|
Aspect |
India Tax Treatment |
US Tax Treatment |
|
Receiving inheritance |
Not taxable |
Not taxable |
|
Form 3520 reporting |
Not applicable |
Required if over $100,000 |
|
Cost basis when selling |
Original owner's cost with indexation |
Fair market value at death (step-up) |
|
Capital gains tax rate |
12.5% or 20% (long-term) |
15-20% (long-term) |
|
FBAR reporting |
Not applicable |
Required if accounts exceed $10,000 |
Common IRS Mistakes NRIs Make with Inherited Property
Understanding frequent errors helps you avoid penalties and compliance issues when inheriting property in India.
Mistake #1: Not filing Form 3520
Many NRIs don't know Form 3520 exists until they face penalties. Receiving inherited property worth $150,000 and not filing Form 3520 triggers a minimum $10,000 penalty, potentially reaching $37,500 (25% of $150,000).
Solution: File Form 3520 with your tax return for any inheritance exceeding $100,000, even though you owe no tax on the inheritance itself.
Mistake #2: Using wrong cost basis when selling
Many NRIs use the Indian cost basis (original owner's purchase price) for US tax purposes, significantly overstating their US capital gains tax.
Solution: Apply step-up basis (fair market value at death) for US tax calculations while using original cost with indexation for Indian tax.
Mistake #3: Not claiming foreign tax credits
Paying 12.5-20% capital gains tax in India when selling property, then paying full 15-20% US capital gains tax without claiming foreign tax credits results in double taxation.
Solution: File Form 1116 with your US return claiming dollar-for-dollar credits for Indian capital gains tax paid, typically eliminating US tax liability.
Mistake #4: Missing FBAR for inherited accounts
Inheriting Indian bank accounts worth ?15 lakh ($18,000) along with property and failing to file FBAR because you "only inherited property" triggers penalties up to $16,536 per year.
Solution: File FBAR if aggregate foreign accounts (including inherited accounts) exceed $10,000 at any time during the year. File even if you later closed the accounts.
Mistake #5: Not reporting rental income
Renting inherited property and believing you don't need to report rental income because "it's from inherited property in India" or "I already paid Indian taxes."
Solution: Report all rental income from inherited property on Schedule E of your US return. Claim foreign tax credits for Indian taxes paid on that rental income.
Mistake #6: Incorrect property valuation
Using the Indian stamp duty value, municipal value, or listing price instead of actual fair market value for Form 3520 and step-up basis calculations.
Solution: Obtain a professional appraisal determining fair market value on the date of death. This value becomes your US cost basis when you sell and must be accurately reported on Form 3520.
Mistake #7: Treating gifts as inheritances
Property received while parents are alive (added to property title, gifted) but treating it as inheritance after they pass away.
Solution: Understand the difference, gifts received while the donor is alive require Form 3520 in the year received and don't get a step-up basis. Inheritances received after death get step-up basis and report in the year of death.
Mistake #8: Ignoring joint property complications
Inheriting 50% share in property jointly owned with siblings and reporting the full property value on Form 3520, or not reporting anything because you "only own part of it."
Solution: Report your proportionate share on Form 3520. If property is worth $300,000 and you inherit 1/3 share ($100,000), file Form 3520. Track your ownership percentage for basis calculations when eventually selling.
Mistake #9: Missing amended return opportunities
Discovering years later that you overpaid US taxes by not using step-up basis or not claiming foreign tax credits, but believing "it's too late to fix."
Solution: File amended returns (Form 1040-X) within three years of original filing to claim refunds. Recalculate capital gains using proper step-up basis and claim missed foreign tax credits.
Mistake #10: Not converting currency correctly
Using incorrect exchange rates when converting inheritance value and capital gains between rupees and dollars.
Solution: Use official Treasury exchange rates www.fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange for the specific dates: date of death for inheritance value/step-up basis, date of sale for sale proceeds, and original purchase date for Indian cost basis if needed for comparison.
How NSKT Global helps with inherited property compliance
NSKT Global specializes in helping US citizens navigate the complex tax issues surrounding inherited property in India. Our experienced cross-border tax team understands both US and Indian tax regulations.
Our services include Form 3520 preparation for foreign inheritance reporting, property valuation assistance ensuring accurate fair market value determination, FBAR and Form 8938 filing for inherited accounts, capital gains tax planning when selling inherited property, foreign tax credit optimization using India-US tax treaty provisions, and delinquent filing assistance if you missed prior year reporting.
Whether you recently inherited property in India, are planning to sell inherited property, wondering do you have to pay taxes on inheritance, concerned about inheritance tax for non-US citizens, or need help with Form 3520 filing, NSKT Global provides the expertise to ensure full compliance while minimizing your tax burden in both countries.
People Also Ask
Can I live in inherited property in India without paying US taxes?
Yes. Simply owning and living in inherited property triggers no US tax. You only pay tax on income generated (rental income) or capital gains when you sell.
What if I inherit property worth less than $100,000?
You don't need to file Form 3520. However, you must still report any income generated by the property and file FBAR if inherited bank accounts exceed $10,000.
Do I pay taxes twice when I sell inherited property in India?
No. The India-US tax treaty prevents double taxation. You pay capital gains tax in India first, then claim foreign tax credits on your US return, typically eliminating US tax.
What if my parents added me to their Indian property title before death?
This may be treated as a gift rather than inheritance. Gifts received while the donor is alive follow different rules than inheritances received after death.
How long can I hold inherited property before selling?
There's no time limit. You can hold inherited property indefinitely. Capital gains tax applies only when you sell, regardless of how many years you held it.
