Dear Tax Talk,
My husband is a Canadian citizen (U.S. permanent resident) and has some inheritance money coming to him from his mother’s estate (also a Canadian citizen). I understand the funds will not be eligible for estate taxes as it is from one non-U.S. citizen to another, but will it be subject to capital gains taxes on our individual filings? We file married/joint, but he does not work. Any assistance would be great as the IRS was unable to answer my question.
The inheritance money your husband receives from his mother’s estate is not taxable to him and is not subject to capital gain taxes on your jointly filed U.S. income tax return. However, once he receives the funds, he will be responsible to report and pay any taxes due if the money is generating taxable income. For example, if he puts it in a savings account and the account starts generating interest income, then you will report the interest income as it is earned each year.
I want to make you aware that U.S. citizens, which include U.S. permanent residents, are required to complete IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, if they receive more than $100,000 from a nonresident alien or foreign estate that is treated as a gift or bequest. This form is 6 pages long and you will see that in addition to the first page, Part IV is the specific place to report the required information. The Form 3520 is filed with your Form 1040 and substantial penalties may be applied if the information is incorrect or incomplete.
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You may want to consider seeking the assistance of a qualified tax preparer to help you with your tax return for this year.
Thanks for the great question and all the best to you and your husband.
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