Need Advice: Tax Implications When Brother Sells Inherited Property in Philippines & Shares Proceeds

This is definitely a tricky situation with multiple layers! From what I understand, the key question is whether this money coming to you is considered a gift or inheritance/capital gains. Here's my take: Since your husband formally transferred legal ownership to his sister years ago, and you have no legal claim to the property now, the money she's sending would most likely be considered a gift from your sister-in-law rather than proceeds from property sale. Essentially, she's choosing to give you money that matches what would have been your husband's inheritance portion. For US tax purposes, the recipient of a gift doesn't pay tax on it - the giver would be responsible for any gift tax. Since your sister-in-law is not a US citizen/resident and the gift is coming from outside the US, different rules apply. She likely won't have to file any US gift tax returns unless she has US assets or income. You should report receiving foreign gifts over a certain threshold (currently $100,000 from related individuals) on Form 3520. This is an information return, not a tax return. I'd recommend consulting with a tax professional who specializes in international taxation and inheritance - not just any CPA or tax attorney. Look specifically for someone with experience in US-Philippines tax matters, as there may be nuances in how the IRS views property rights under Philippine inheritance law.

Hey there! I was in a similar situation about two years ago with property my family had in Malaysia. I spent WEEKS trying to figure out the tax implications and getting nowhere with regular CPAs. Finally found https://taxr.ai which specializes in analyzing complex tax situations like this with international property. I uploaded all my documents (the transfer agreements, sale documentation, gift letters, etc.) and they ran everything through their system. They identified exactly which parts would be considered a gift vs. capital gains, and explained how the step-up basis worked with foreign property that had been transferred between family members. The best part was they explained exactly what forms I needed to file and why. Turns out I needed to file an FBAR for the foreign account access but didn't owe capital gains because of how the ownership transfer had been structured years earlier. Saved me thousands and gave me peace of mind that I wasn't missing anything!

Just wanted to update that I tried taxr.ai after seeing the recommendation here. I was skeptical at first since my situation with inherited property in India was complicated, but I'm really glad I did! They identified that what I thought was a simple gift was actually partially considered distribution of estate proceeds under US tax law based on the specific way the property had been transferred years ago. Their analysis saved me from potentially serious reporting mistakes. They showed me exactly where the line between gift and income falls in situations like this, and provided documentation I could share with my tax preparer. Definitely worth it for peace of mind when dealing with international inheritance!

Something no one has mentioned yet - you might need to talk to the IRS directly about this. I had a similar issue with inherited property in Korea and spent WEEKS trying to get through to someone who could help. It was impossible! Then I found https://claimyr.com which got me through to an IRS agent in under 20 minutes when I'd been trying for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c What I learned from finally talking to the IRS was that foreign inherited property that was never in your name but where you receive proceeds can be classified in different ways depending on specific details of how the transfer was documented. In my case, they directed me to a specific section of the tax code that clarified I needed to file an informational return but didn't owe taxes. Having that conversation saved me thousands in unnecessary tax payments.

I was incredibly skeptical about using a service to reach the IRS, but after waiting on hold for over 3 hours and getting disconnected twice, I decided to try Claimyr. I'm shocked to say it actually worked! Got connected to an IRS agent in about 15 minutes. The agent transferred me to their international division, and I finally got clear answers about my situation with inherited property in Thailand. They confirmed I needed to file Form 3520 for the foreign gift but that capital gains tax wouldn't apply since I had formally transferred legal rights years ago. They also warned me about FBAR requirements since I'd have signature authority on foreign accounts. What a relief to get official clarification! Saved me so much stress and potentially thousands in incorrect tax payments. Sometimes you need to hear it directly from the IRS to be sure.

I think everyone is missing a key point here - did your husband's father ever file US taxes? If he was never a US person and the property was acquired with foreign money, then when your husband inherited it, he should have received a step-up in basis to the fair market value at the time of his father's death. Then when he transferred it to his sister, that could potentially have been either a gift (no immediate tax consequences for him, but sister takes his basis) or a sale (potentially taxable to your husband if value had increased). The current payment from sister could be: 1. A gift (as others have suggested) 2. Delayed payment for the earlier transfer (potentially taxable) 3. Distribution of proceeds where she was acting as an agent (potentially taxable) You really need someone who understands both US international tax AND Philippine property law.

Has anyone mentioned FATCA requirements yet? If the sister deposits the money in a foreign account that OP has signature authority over, there could be additional reporting requirements beyond just the gift tax forms.

I've been through a similar situation with inherited property in Mexico, and I learned some hard lessons about the importance of proper documentation. One thing that might help your case is getting a formal written statement from your sister-in-law clearly stating that this payment is a voluntary gift with no legal obligation on her part. The IRS looks at the substance of transactions, not just the form. Since you mentioned she "could keep all the money if she wanted," having her document that this is purely voluntary generosity (not payment for services, not fulfillment of any agreement) could strengthen the gift classification. Also, make sure you understand the timing requirements. Form 3520 for foreign gifts needs to be filed by the due date of your tax return (including extensions), and there are significant penalties for late filing even if no tax is owed. The penalty can be 35% of the gift amount, which is brutal. I'd strongly recommend getting professional help from someone who specifically handles US-Philippines tax matters. The intersection of foreign inheritance law, gift tax rules, and international reporting requirements is complex enough that general tax preparers often miss important details.