If you are a US citizen or green card holder and your parents in China leave you money or property, the inheritance itself is, in most cases, not taxed by the United States. Inheritances are not income to the person who receives them, and the US estate tax falls on the estate of the person who died, not the heir. Your parents, as non-US persons holding assets in China, sit outside that system for everything except property located in the US.
So the tax question most families ask has a comfortable answer. The filing question is the one that hurts.
The Form Almost Nobody Has Heard Of
A US person who receives more than $100,000 in a year from a nonresident relative’s gift or estate must report it on Form 3520. It is an information return. It creates no tax. But file it late and the penalty runs 5% of the amount for every month it sits unfiled, up to 25% of the inheritance (IRS, “Gifts from foreign person”).
Read that again with a number attached. On an $800,000 inheritance, the form costs nothing. Missing it can cost up to $200,000, on money that owed no tax in the first place.
Two details catch families. Gifts from related people count together, so money from your mother and father in the same year is one total, not two. And the $100,000 line is not indexed. It was set when that was a large inheritance; for the families I sit with, it seldom is.
What Each Government Takes
The full picture, country by country, is shorter than most people expect.
China has no estate or inheritance tax today. The United States does not tax the heir on what they inherit, and a nonresident parent’s estate only enters the US system through US-situs property, such as US real estate or shares of US companies, where the exemption is a bare $60,000. California has no inheritance tax at all. That is the whole list.
For a family whose wealth sits in Chinese property, businesses, and accounts, the whole event can pass without a dollar of tax on either side. The cost shows up only when the reporting is missed, or when the money starts moving.
Where the Real Planning Lives
I have this conversation often, and most of the time in Mandarin. Last month it was an engineer in his 50s in my Woodland Hills office, whose father had spent thirty years building a components business in Guangdong. He hadn’t been avoiding the topic. He assumed that because no tax was due, there was nothing to do. We walked through what would need reporting, what the accounts in China would trigger once they carried his name, and what the timeline for moving money would look like. The plan changed his sequence, not his taxes.
That is the general shape of these cases. The questions that need an owner before the first transfer:
Accounts left in China in your name have their own US reporting rules, separate from Form 3520, with their own penalties. Property you keep and later sell needs its value at the date of death documented, because that number becomes your cost basis. And China limits how much an individual can convert and send abroad in a year, so a large inheritance often moves in stages, across years and family members, which is when a “one year over $100,000” reporting test needs the closest attention.
All of it rewards sequence, and none of it rewards speed. Which is the same conclusion as most of tax planning: the return records what happened, and the planning happens before it does. If your CPA has never asked about your parents’ assets, that is not a gap in their competence. It was never their assignment.
The takeaway is one sentence. An inheritance from China is seldom a tax problem and often a reporting problem, and the reporting problem is avoidable if someone owns it before the money moves.
FAQ
Do I pay US income tax on money inherited from parents in China?
No. An inheritance is not gross income to the recipient under US law, whether it comes from the US or abroad. What may apply instead is an information filing, Form 3520, once the year’s total from a nonresident relative’s estate exceeds $100,000.
What happens if I never filed Form 3520 for a past inheritance?
The penalty accrues at 5% per month, capped at 25% of the amount, but the IRS can abate it for reasonable cause. If you have an unreported inheritance from a past year, that conversation belongs with a professional before the IRS raises it. Do not fold it into this year’s return on your own.
Does California tax an inheritance from China?
No. California has no inheritance tax and no state estate tax. The reporting obligations in this article are federal.
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This article is education, not individual advice. What fits you depends on your full picture.