I Inherited Money or Property From Israel. Do I Owe US Tax, and What Must I Report?

This is orientation, not legal or tax advice. It maps what exists and the questions to take to a licensed professional. It does not tell you what to do about your own estate or taxes.

If you are a US citizen or green-card holder and a relative in Israel has died and left you money, an apartment, or a bank account, the question on your mind is probably the simple one: how much of this does the government take? For most people in this situation the short answer is reassuring, and the longer answer is where the real work is.

The short version: you almost certainly owe no US tax on the inheritance itself, and Israel has no inheritance tax at all. What you do have, if the amounts are large enough, are reporting obligations. Miss those and the penalties can be severe, even though no tax was ever due. This page walks through which is which. It is general orientation, not tax or legal advice for your situation.

Does Israel tax an inheritance?

No. Israel abolished its estate tax in 1981 and has not reinstated it. There is no Israeli inheritance tax and no Israeli gift tax. According to PwC's Worldwide Tax Summaries and the Israel Tax Authority, the transfer of assets at death is not a taxable event in Israel, whether the heir lives in Israel or abroad.

There is one important exception, and it is not a tax on the inheritance. It is a tax on a later sale. If you inherit Israeli real estate and then sell it, Israel can impose its land appreciation tax (mas shevach) on the gain. The inheritance moment is clean. The sale moment is not. If selling is where you are headed, that is a separate question, and it is where cross-border capital-gains and basis issues show up.

Does the US tax money you inherit from Israel?

Not on receipt. The US does not treat an inheritance or gift as taxable income to the person who receives it. Under the Internal Revenue Code, a bequest is excluded from your gross income, so the cash or property landing in your hands from an Israeli estate does not go on your income tax return as income and does not, by itself, generate a US tax bill.

The US tax that can attach to a death is the estate tax, and that is a tax on the deceased person's estate, not on the heir. Whether it applies depends on who the deceased was, not on you:

• If the person who died was a US citizen or US domiciliary, their worldwide estate can face US federal estate tax, but only above a very high exclusion ($13.99 million for deaths in 2025). Most estates are nowhere near it.
• If the person who died was a nonresident, non-US-citizen Israeli, US estate tax reaches only their US-situs assets, and the exemption for those assets is just $60,000. That is a real trap for an Israeli parent who held US stock, and it is covered in detail in our page on the $60,000 US estate tax trap.

Either way, the heir is not the one the US taxes on the inheritance itself.

The reporting trap: Form 3520

Here is where the surprise lives. Even though you owe no tax on the inheritance, you can still owe a filing.

The IRS requires a US person who receives more than $100,000 in gifts or bequests from a nonresident alien individual or a foreign estate, in aggregate during a single tax year, to report it on Form 3520, Part IV. An inheritance from an Israeli relative is exactly this kind of bequest. A few details that catch people:

• The $100,000 threshold is per year and aggregated. Several transfers from the same person, or from related people, are added together. Once you cross the line, you must separately identify each gift over $5,000.
• Form 3520 is informational. You report the inheritance, you do not pay tax on it through this form.
• It is filed separately from your income tax return, even though it is due at the same time (generally April 15, or June 15 if you live abroad, with the same extension as your return).
• The penalty for not filing, filing late, or filing incompletely is steep. Under IRC section 6039F, it is 5 percent of the value of the inheritance for each month the failure continues, up to a maximum of 25 percent, unless you can show reasonable cause. That is a penalty measured against the inheritance, on an inheritance that was never taxable to begin with.

This gap, no tax but a serious reporting penalty, is the single most common way a straightforward inheritance from Israel turns into an IRS problem.

You inherited an Israeli bank or brokerage account. Now what?

Cash is one thing. An account is another, because once it is yours, the ongoing reporting rules apply to you.

• FBAR (FinCEN Form 114). If your foreign financial accounts together hold more than $10,000 at any single point during the year, you must file an FBAR with FinCEN. An inherited Israeli bank or investment account counts the moment you have a financial interest in it.
• FATCA (Form 8938). If your specified foreign financial assets exceed the Form 8938 threshold (which varies by filing status and whether you live in the US or abroad), you also report them to the IRS on Form 8938 with your return.
• The income, not the principal. The inheritance itself is not income, but what the account earns after you own it (interest, dividends, gains) is taxable and reportable like any other income.

These obligations stack on top of Form 3520, not instead of it. It is common to owe all three filings for the same inherited account.

Is there a US-Israel estate tax treaty?

No. This one matters because people assume the treaty covers everything.

There is a US-Israel income tax treaty, signed in 1975 and in force since 1995. It deals with income taxes, withholding, and double-tax relief. But the IRS treaty materials are explicit that the convention does not cover estate, gift, or generation-skipping transfer taxes, and Israel does not appear on the IRS list of countries with an estate and gift tax treaty. There is no estate or gift tax treaty between the two countries.

The practical consequence: estate exposure is decided separately under each country's own domestic law, with no treaty to coordinate or offset it. For most heirs this is moot, because Israel has no estate tax and the US estate tax falls on the estate, not the heir. But it is the reason a cross-border estate cannot be planned by assuming a treaty will smooth things over. It will not.

What about selling the inherited asset later?

The inheritance is clean. The sale is the taxable event to watch.

• US side. When you eventually sell an inherited asset, US capital gains tax can apply on the gain, measured from your cost basis. Inherited-property basis rules are specific, so the date-of-death value matters, keep records of it.
• Israeli side. Selling inherited Israeli real estate can trigger Israel's land appreciation tax. A US citizen who pays it may be able to use it as a foreign tax credit, because the US-Israel income tax treaty recognizes the land appreciation tax as a covered Israeli tax.
• Moving US securities held in an Israeli account back to a US broker can run into the medallion signature guarantee problem, which is its own headache when the broker is overseas.

The bottom line, and what to do next

For most people inheriting from Israel, the tax answer is favorable and the reporting answer is the part that bites. A quick orientation checklist:

1. Total what you received from the Israeli person or estate this tax year. If it crosses $100,000, Form 3520 is on the table.
2. Inventory any inherited Israeli accounts. If they cross the FBAR or Form 8938 thresholds, those filings are on the table too.
3. Write down the date of death and the fair market value of everything as of that date. You will need it for basis if you ever sell.
4. Separate the question of tax (usually none on the inheritance itself) from the question of reporting (often required, with real penalties for missing it).

Cross-border estate situations turn on specifics: where the assets sit, who the decedent was, your own residency, and what you intend to do with what you inherited. This page is general orientation, not advice for your situation. If the numbers here are anywhere near your reality, the right next step is a short conversation with a cross-border US-Israel CPA or estate attorney who handles exactly these filings. We can point you to a vetted one.