Please explain. Thank you.
Yes, it is an inheritance, and yes, it is a capital gain transaction when you sell the property. I'm assuming you extended your 2011 tax return and that you're not asking these questions too late.
IRS Form 3520 Part IV on Page 6 is used to report foreign inheritances/bequests in excess of $100,000. In computing the $100,000 threshold, you would consider your parents as one because they are married. For example, if your mother left you $60,000 in cash and property and your dad also left you $60,000, the inheritance would be reportable. While the inheritance is reportable on Form 3520, it is not considered income and you do not have to pay U.S. income taxes on the value of the property in most circumstances. An exception would be if your parents left you some form of income such as a rental property.
You may also have to disclose your foreign estate interest on Form 8938 or at least file that form and refer to your Form 3520 filing. If you received cash or securities in a foreign financial account in excess of $10,000 at any time during the year, you may also need to file an FBAR, or foreign bank account report. The penalties are steep for not complying with the disclosure requirements, so I highly recommend that you consult with a CPA familiar with the disclosure rules.
Lastly, the sale of the property would be reported on Schedule D of your Form 1040. The rules of inheritance that apply to domestic inheritances apply similarly to foreign inheritances. Specifically, your basis in the assets that you inherit is stepped up to the date of death value. In other words, you would use the fair market value at the date of death of your parents as your cost of the property that you sold, and that should be reported on Schedule D.
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