What Is the Tax on Selling Inherited Property Overseas?
When you sell inherited property overseas, you owe U.S. capital gains tax on the difference between the sale proceeds (in USD) and your stepped-up cost basis. Inherited property automatically qualifies for long-term capital gains treatment regardless of how long you held it, and any foreign tax paid on the sale is creditable on Form 1116.
Step-by-step calculation:
| Step | What to do |
| 1. Determine stepped-up basis | FMV on date of death, converted to USD at that date’s rate |
| 2. Add improvements after inheritance | USD cost of any capital improvements you made |
| 3. Calculate sale proceeds in USD | Sale price in foreign currency x exchange rate on closing date |
| 4. Subtract selling costs | Agent commissions, notary, legal, transfer taxes |
| 5. Compute gain | Proceeds minus costs minus stepped-up basis |
Example (inherited Indian property):
| Item | INR | USD |
| Stepped-up basis (date of death 2022) | INR 30,000,000 | $375,000 @ 0.0125 |
| Sale price (2025) | INR 35,000,000 | $416,500 @ 0.0119 |
| Selling costs | INR 1,750,000 | ($20,825) |
| U.S. capital gain | $20,675 | |
| Indian capital gains tax paid | $25,000 | |
| Form 1116 credit | ($20,675 limited to U.S. tax on gain) |
Key tax rules:
- Always long-term: Inherited property is treated as held for more than one year, qualifying for 0%, 15%, or 20% rates
- Net Investment Income Tax: An additional 3.8% may apply above MAGI thresholds ($200,000 single, $250,000 MFJ)
- Foreign tax credit: Claim foreign capital gains tax paid on Form 1116 (passive category). If foreign tax exceeds U.S. tax on the gain, the excess carries forward
- Section 988 currency gain: If you repay a foreign mortgage at sale, any currency gain on the debt is ordinary income reported separately
Filing requirements: Report the sale on Form 8949 and Schedule D. File Form 3520 in the year you received the inheritance (if over $100,000).
For inherited property tax planning, see our guide on Avoiding Capital Gains Tax on Inherited Property.
Last updated on April 29, 2026
