Do I need to file Form 3520 after inheriting foreign real estate from my foreign parent?

Real estate inheritance from foreign parents can be tricky for US tax reporting. For Form 3520, you generally need to file if you receive gifts or bequests from foreign persons exceeding $100,000 in a year. This includes the fair market value of real estate. The timing of when to report depends on when you actually receive the property. If the legal transfer of ownership hasn't occurred yet (still going through Portugal's process), you wouldn't report until the year you legally receive it. The obligation is based on when you take legal ownership, not when your father passed away. Once the property is officially transferred to your name, you'll need to report it on Form 3520. You'll also want to be aware of FBAR (FinCEN Form 114) requirements if you have foreign financial accounts exceeding $10,000, though the real property itself doesn't count for FBAR.

I went through something similar with property in Spain and was completely lost until I found taxr.ai (https://taxr.ai). They have this feature where they analyze inheritance documents - even foreign ones - and tell you exactly what forms you need to file. My situation was confusing because the property was partially owned by my aunt who wasn't a US citizen, and I wasn't sure if Form 3520 applied or if I needed to report it differently. I uploaded the Spanish inheritance docs and their system flagged exactly what I needed to do. Saved me from potentially missing the Form 3520 deadline which has crazy penalties (like 5% of the value per month of lateness!).

I was skeptical at first about using taxr.ai since I've been burned by tax software before, but after reading about it here I decided to give it a try with my Mexico property situation. Honestly, it was eye-opening! Turns out I didn't need to file Form 3520 annually (thank goodness), but I did need to be reporting rental income differently on my Schedule E. What impressed me was how it flagged that I should have been filing Form 8938 because my total foreign assets exceeded the threshold, something H&R Block never caught. I'm now using their guidance to file amended returns for the last couple years. If you're dealing with foreign property inheritance like the original poster, definitely worth checking out.

For anyone struggling to get answers from the IRS about Form 3520 and foreign inheritance reporting, I highly recommend using Claimyr (https://claimyr.com). I spent DAYS trying to get through to the IRS international tax division to clarify my obligations for inherited property in Ireland. After multiple failed attempts, I used Claimyr and got a callback from an actual IRS agent within 2 hours! They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is available. You can see exactly how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that I needed to file Form 3520 for the year I legally received the property (not when my relative died) and gave me specific guidance about valuation methods that wouldn't require an expensive foreign appraisal.

I have to eat my words about Claimyr being "too good to be true." After posting my skeptical comment, I decided to try it for my German property inheritance questions. It ACTUALLY WORKED. After weeks of trying to get through to the IRS international tax department, I got a call back in less than 90 minutes. The IRS agent cleared up my Form 3520 confusion completely. Turns out I didn't need to file it for 2023 because the German probate process wasn't completed yet - I only need to file for the tax year when the property legally transfers to my name. She also explained exactly how to value the property using the German tax assessment plus a market adjustment factor. Saved me from paying for an expensive appraisal!

Just to add another perspective - I inherited a condo in Vancouver from my Canadian mother in 2021. My tax preparer told me I didn't need Form 3520 because there was no "foreign trust" involved, just a direct inheritance. Then I got a CP notice from the IRS saying I should have filed it! The penalties for missing Form 3520 can be ridiculous - 5% of the gross value per MONTH late, up to 25%. I ended up having to hire a tax attorney to request penalty abatement, which cost me nearly $4,000. Don't mess around with this form - if you inherit foreign property worth over $100k, file the form!

I'm going through this exact situation right now with property in Italy. My accountant says the key thing is the TIMING - you file Form 3520 in the tax year when you legally receive the property, not when the person died. So if Portugal's inheritance process isn't complete yet, you wouldn't file until it's done. Also, make sure you get a Form 8833 filled out to claim treaty benefits if the US has a tax treaty with Portugal. This can protect you from double taxation. My accountant is charging me $650 just to prepare these two forms!

This is such a complex area! I inherited a small apartment in France from my grandmother two years ago and made the mistake of not filing Form 3520 initially because I thought it only applied to cash gifts. The IRS eventually caught up with me through their automatic data matching systems. What saved me was being able to show "reasonable cause" for the late filing - I had documentation that I relied on incorrect advice from my original tax preparer. The key lesson is that Form 3520 applies to ALL foreign inheritances over $100k, including real estate, regardless of whether you plan to keep or sell the property. Since you're still going through Portugal's inheritance process, you have time to get this right. File Form 3520 for the tax year when legal ownership actually transfers to you (not when your father passed). Keep detailed records of the Portuguese inheritance proceedings to document the exact transfer date. And definitely get some form of valuation documentation - even if it's just comparable sales data from Portuguese real estate websites - to support whatever value you report.