20 Feb Is overseas inheritance taxable in N.J.?

Q. I inherited an apartment in Germany. I know I have to pay all taxes there and the U.S. will treat it as non-taxable regarding the federal tax. But we live in New Jersey, so would there be inheritance or estate tax here? The relative was German and had no connection to the U.S.
— Beneficiary

A. A United States citizen or resident generally does not have to pay income, gift or estate tax upon receipt of a gift or bequest of money or property from a nonresident alien individual.

But if the value of that gift or bequest is greater than $100,000, it must be reported to the IRS using Form 3520, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Although New Jersey continues to have an inheritance tax, it no longer has an estate tax effective Jan. 1, 2018.

“With regard to the inheritance tax and the estate tax when it was in effect, the decedent needs to have some nexus or connection to the state of New Jersey in order for the tax to be imposed upon the decedent’s transfer of property,” Romania said. “The fact that the beneficiary inheriting the property is a resident of New Jersey is not sufficient for New Jersey to tax the transfer.”

If the decedent was not a resident of New Jersey and owned no real or tangible personal property in New Jersey, there would be no New Jersey inheritance tax assessed, she said.

With respect to the apartment in Germany that you now own, as a U.S. citizen or resident, you are taxed on your worldwide income, Romania said.

That means if you rent such an apartment in the future, you must report such rental income on your income tax return, she said.

You may have other reporting requirements with respect to the ownership of foreign income producing property and related accounts, so check with a tax preparer who knows your specific situation.

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This post was first published in February 2018.