24 Dec I inherited a property overseas. Now what?

Q. I inherited half of an apartment from my mother in Germany. My sister inherited the other half. I paid her out and the apartment was transferred to me officially. The apartment needs to be renovated, especially the bathrooms and kitchen, and the floors. How will these expenses, including the flights, play a role with the tax returns? What do I need to know and what do I need to learn in reference to this inheritance? We live in Lumberton and file taxes as residents in New Jersey.
— Beneficiary

A. Gute Frage!

Or, good question!

In general, neither New Jersey nor the United States assess an inheritance or estate tax with respect to a gift or an inheritance of foreign property from a non-citizen, non-resident, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

For informational purposes, you do need to report the inheritance on IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, she said.

This form is required if the value of the inheritance or gift exceeds $100,000, Romania said.

“Your basis in the property, should you subsequently sell the property, will be the date of death value — as to the one-half you inherited — together with the purchase price as to the one half you purchased together with the costs of major repairs and capital improvements less selling expenses,” she said. “Meanwhile, you will also incur an income tax on any rental income you may receive with respect to the leasing of the property during your ownership of the property.”

Whether or not you can deduct some or all of your travel expenses will depend on the primary purpose of the trip, Romania said.

“If the expense was incurred primarily in connection with the construction of the capital improvements, you may be able to add it to your basis to reduce the capital gain incurred upon sale of the property,” she said. “If you are renting the property and have income therefrom, and the travel expense was incurred in connection with repairs, you may be able to deduct such expense in the year incurred to offset income earned.”

As for any tax or legal issues on the German side of things, you should seek local counsel.

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This story was originally published in December 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.