Where to Report Inheritance on Your Tax Return

An inheritance itself has no line on your federal tax return. Under federal law, property you receive by bequest or inheritance is excluded from your gross income, so the cash, house, brokerage account, or other asset you receive is not reported as earnings on Form 1040.¹ Where to report an inheritance on your tax return only becomes a real question once those assets start producing income, once you sell them, or once a foreign transfer triggers a separate disclosure form. The right place depends entirely on what happened after the money reached you.

The Transfer Itself: Nothing to Report

You do not enter the value of an inheritance anywhere on Form 1040. No line, no schedule, no attachment. You will not receive a 1099 for the bequest, and the IRS does not expect you to reconcile it.¹

Federal estate tax, when it applies, is paid by the estate before anything is distributed. For 2026 the exemption sits at $15,000,000, so most estates owe no federal estate tax at all, and whatever the estate distributes reaches you tax-free at the federal level.²

State-level estate and inheritance taxes are separate from your federal income tax return and are not reported on Form 1040. A state estate tax is settled by the estate before assets reach you; a state inheritance tax, imposed in Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, is paid directly by you to the state. Neither one changes how you handle the inheritance federally.

Income the Inherited Assets Produce

The exclusion covers the transfer, not what the property earns afterward. Interest, dividends, rent, and gains from selling inherited assets are fully taxable and go on your return like any other investment or property income.¹ This is where most reporting errors happen.

Interest and Dividends

Inherited bank accounts, bonds, and brokerage accounts keep paying after the date of death. Financial institutions report those payments on Form 1099-INT or Form 1099-DIV. Report interest on line 2b of Form 1040 and dividends on line 3b. If you exceed the filing threshold, list the payers on Schedule B.

Rental Income From Inherited Real Estate

If you rent out inherited real estate, gross rents and allowable expenses, including property taxes, insurance, maintenance, and depreciation, go on Schedule E. Depreciation is calculated using your stepped-up basis, which often produces a larger annual deduction than the original owner had been claiming.

Schedule K-1 From the Estate

The estate may earn income during administration and pass it through to you before distributing the underlying assets. When that happens, the executor sends you Schedule K-1 (Form 1041).³ Each box maps to a specific place on your 1040:

Box 1 interest goes on Form 1040 line 2b, and on Schedule B if required.
Box 2a ordinary dividends go on Form 1040 line 3b, and on Schedule B if required.
Boxes 3 and 4a capital gains go on Schedule D.
Box 10 estate tax deduction goes on Schedule A, line 16.

Keep the K-1 with your records. You generally do not attach it to your return unless backup withholding is shown in box 13.³

Selling Inherited Property: Form 8949 and Schedule D

When you sell an inherited asset, the difference between the sale price and your stepped-up basis is a capital gain or loss. Report the details on Form 8949 and carry the totals to Schedule D. On Form 8949, enter “Inherited” or “INH” as the date of acquisition. Inherited property is automatically treated as long-term regardless of how briefly you held it, so any gain qualifies for long-term capital gains rates.⁴

Your basis is the fair market value on the date the original owner died, not what the decedent originally paid.⁴ For real estate, get a date-of-death appraisal and keep it permanently; if the property sells years later, you may need to prove the value.

If the estate filed a federal estate tax return and provided you a Schedule A to Form 8971, the basis you report must match the value the estate reported. Claiming a higher basis than the estate reported can trigger an accuracy-related penalty.⁵

Inherited Retirement Accounts

Retirement accounts are the biggest exception to the “inheritances aren’t income” rule. Money in a traditional IRA or 401(k) was never taxed on the way in, so every dollar you withdraw is ordinary income at your regular rate.⁶ The custodian issues Form 1099-R for each distribution, and you enter the taxable amount on the IRA distributions or pensions and annuities line of Form 1040.

Non-spouse beneficiaries of accounts inherited from someone who died in 2020 or later must empty the account by December 31 of the tenth year after the year of death.⁶ If the original owner had already begun required minimum distributions, annual withdrawals are also required in years one through nine. Missing a required distribution triggers a 25% excise tax on the shortfall, reduced to 10% if corrected within two years.⁷

Certain beneficiaries are exempt from the 10-year rule and can stretch distributions over their life expectancy: surviving spouses, minor children of the decedent until they reach the age of majority, beneficiaries who are disabled or chronically ill, and beneficiaries not more than 10 years younger than the decedent.⁶

Inherited Roth IRAs work differently. Qualified distributions are tax-free provided the original account had been open at least five years.⁶ If the five-year requirement isn’t met, the earnings portion of a distribution is taxable, though contributions still come out tax-free. The 10-year distribution deadline still applies to non-spouse beneficiaries.

Life Insurance Proceeds

Death benefits paid to you as a named beneficiary because of the insured person’s death are not included in gross income.⁸ A lump-sum payout has nothing to report.

Interest is the exception. If you leave the proceeds with the insurer under an installment arrangement, interest paid on the held funds is taxable and is reported by the insurer on Form 1099-INT. Report it on line 2b of Form 1040 like any other interest. The principal portion of each installment remains tax-free.⁸

Income in Respect of a Decedent

Some amounts the decedent had a right to at death but had not yet received are taxable to whoever collects them. Unpaid wages, accrued commissions, uncollected sales proceeds, and similar items are called income in respect of a decedent, or IRD. Unlike other inherited property, IRD does not get a stepped-up basis, and it keeps the same character it would have had for the decedent.⁹

Report each IRD item on the line matching its character: wages on the wage line, dividends on the dividend line, capital gains on Schedule D, business income on Schedule E, Part III.⁹

If the estate actually paid federal estate tax on IRD items, you can claim an itemized deduction on Schedule A for the portion of estate tax attributable to the IRD you received.¹⁰ Because most estates fall below the federal exemption and owe no estate tax, this deduction rarely applies in practice.

Foreign Inheritance Disclosures

A foreign inheritance is still not income to you, but it can trigger disclosure forms with steep penalties for missing them. These forms do not create tax on the transfer; they exist so the IRS knows the money crossed the border.

Form 3520

If you receive more than $100,000 in total gifts or bequests during the tax year from a foreign estate or non-resident alien, file Form 3520 with the IRS.¹¹ Form 3520 is due when your income tax return is due, typically April 15, and gets the automatic extension to October 15 if you have a valid income tax extension.¹²

The penalty for late or missing filing is 5% of the unreported amount per month, up to 25%.¹¹ On a $500,000 inheritance that maxes out at $125,000, even though no tax is owed on the transfer itself.

FBAR and Form 8938

If the foreign inheritance includes financial accounts abroad, two additional filings may apply.

File an FBAR (FinCEN Form 114) electronically with the Financial Crimes Enforcement Network if the combined value of your foreign financial accounts exceeds $10,000 at any point during the year.¹³ The FBAR goes to FinCEN, not the IRS, and is not part of your tax return.¹⁴

File Form 8938 with your federal return if your foreign financial assets exceed the applicable threshold. For U.S. residents, that is $50,000 at year-end or $75,000 at any point during the year for single filers, and $100,000 at year-end or $150,000 at any point for joint filers. If you live abroad, thresholds rise to $200,000 at year-end or $300,000 at any point for single filers.¹⁵

Both filings are informational. Income the foreign accounts generate after you inherit them, however, is taxable and gets reported on the ordinary schedules of your Form 1040 alongside domestic investment income.

1
Office of the Law Revision Counsel. 26 USC 102 – Gifts and Inheritances
2
Internal Revenue Service. Whats New – Estate and Gift Tax
3
Internal Revenue Service. Instructions for Schedule K-1 (Form 1041) for a Beneficiary Filing Form 1040 or 1040-SR
4
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
5
Internal Revenue Service. Gifts and Inheritances
6
Internal Revenue Service. Retirement Topics – Beneficiary
7
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
8
Office of the Law Revision Counsel. 26 USC 101 – Certain Death Benefits
9
Internal Revenue Service. Publication 559, Survivors, Executors, and Administrators
10
eCFR. 26 CFR 1.691(c)-2 – Estates and Trusts
11
Internal Revenue Service. Instructions for Form 3520
12
Internal Revenue Service. Instructions for Form 3520
13
Financial Crimes Enforcement Network. Report Foreign Bank and Financial Accounts
14
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
15
Internal Revenue Service. Instructions for Form 8938