Italian Inheritance and the IRS: Low Italian Rates, US Reporting Duties

You have just learned that a parent, aunt, or grandparent in Italy has left you a flat in Palermo, a bank account at a local branch, or a share of a family farmhouse. Italy’s inheritance tax on close relatives is often modest. The harder part is the American paperwork that follows. This guide covers both systems, the forms you owe, and how to avoid penalties.

Why an Italian Inheritance Feels Simple Until the IRS Enters the Room

I have watched friends here in Italy move through grief and paperwork at the same time. The pattern is usually the same. The Italian side turns out to be bureaucratic but manageable. A notary, a local accountant, and a few trips to the Agenzia delle Entrate later, the succession is closed and the tax is low or even zero. Then someone at a dinner party mentions the IRS. The relief turns into a knot in the stomach.

That knot is understandable. If you are a US citizen or green card holder, America taxes you on worldwide income and wants to know about your worldwide assets. An inheritance from Italy is usually not taxable income in the US. It does, however, trigger reporting obligations. Some of them carry penalties large enough to wipe out a meaningful slice of what you inherited if you miss them.

Two Countries, Two Completely Different Questions

The cleanest way to think about this is that Italy and the US ask different questions about the same event. Italy asks: “Something passed from a deceased person to an heir. How much tax does the estate or heir owe on that transfer?” That is a transfer tax, the imposta sulle successioni, and it is calculated per heir based on your family relationship to the deceased. For the basics of how that system is built, see Inheritance and Gift Tax in Italy: Basics for Expats.

The United States asks something else. If the deceased was not a US person, the IRS generally has no claim to tax the transfer at all. America does not have a federal inheritance tax that falls on the person receiving the money. What the IRS wants is information. It wants to know that a US person received a large foreign bequest, that foreign bank accounts now exist in your name, and, later, what income and gains those inherited assets produce. Mixing up these two questions causes most of the confusion and panic.

Picture a woman I will call Laura, a US citizen living in Turin. Her mother, an Italian national, dies and leaves her an apartment and a savings account. Italy collects its succession tax, if any is due after exemptions. The US collects nothing on the inheritance itself. Laura still has to file an information return reporting the bequest. She may need to report the savings account every year from then on, and she must report any rent or sale profits on her US return. Same inheritance, two very different sets of obligations.

Who Counts as a US Person for These Rules

Before going further, check whether you are inside the American net. US citizens are covered wherever they live, including dual Italian-American citizens who have never held a US passport but were born on US soil or to American parents. Green card holders are covered too, as are people who meet the substantial presence test for US residency in a given year.

This matters because many heirs of Italian estates are second- or third-generation Italian-Americans who also hold Italian citizenship, sometimes through jure sanguinis. Holding an Italian passport does not switch off your US obligations. If you are in that group, see Inheriting Italian Property Through Jure Sanguinis: The US Tax Angle, which covers the extra wrinkles that come with dual status.

Spouses also need attention. A non-American spouse living in Italy has no US filing duties of their own. But if you file jointly, or if an inherited account ends up in joint names, the reporting picture changes. Settle ownership and titling questions early, before money moves.

Where Taxes for Expats Fits In

This is the point where I give the advice I wish someone had given me years ago. An inheritance crossing the Atlantic sits at the junction of two tax codes, and very few professionals are fluent in both. Italian commercialisti are excellent at the dichiarazione di successione. Most of them will not prepare a Form 3520 or tell you whether your inherited Italian mutual fund is a PFIC. Many US preparers have never seen an Italian cadastral extract.

Taxes for Expats is a firm built for American citizens abroad. It handles the US side of situations like this one: foreign bequests, FBAR and FATCA reporting, foreign tax credits, and the ongoing returns that follow once you own assets in Italy. In the sections below I explain the mechanics so you understand what is happening. The practical answer for most heirs, though, is to bring Taxes for Expats in early, ideally before the Italian succession is filed. Valuation and timing decisions made in Italy affect your US position for years.

How Italy Taxes an Inheritance

Italy’s succession tax has a reputation among expats for being gentle. For close family it often is. “Gentle” does not mean “absent,” though, and property inheritances come with extra levies that operate separately from the main succession tax.

The Imposta sulle Successioni and Relationship Bands

Italian succession tax is calculated heir by heir, not on the estate as a single pot. Each heir’s share is measured, the exemption for that heir’s relationship band is applied, and the rate for that band is charged on anything above the exemption. The closer the relationship, the lower the rate and the larger the exemption. Heirs with a recognised severe disability receive an enhanced exemption whatever their band.

Here is the shape of the system. Rates and exemption figures are set by law and can change, so confirm current values with the Agenzia delle Entrate, your notary, or the detail in Italy’s Inheritance and Gift Tax Exemptions.

Heir’s Relationship to Deceased	Exemption Treatment	Rate Treatment	Practical Effect
Spouse and children or other direct-line relatives	Largest per-heir exemption	Lowest band	Many family inheritances owe no succession tax at all
Siblings	Smaller per-heir exemption	Middle band	Tax is common on larger shares
Other relatives up to the legally defined degree, and in-laws	No dedicated exemption	Higher band	Tax applies from the first euro of the share
Unrelated persons	No dedicated exemption	Highest band	Gifts to friends or partners outside marriage are taxed most heavily
Heirs with recognised severe disability	Enhanced exemption added on top of the relationship band	Rate of their relationship band	Significant relief, documented through official certification

Certain assets also fall outside the taxable base entirely. Italian government bonds are excluded from succession tax, as are life insurance proceeds paid directly to a named beneficiary. If the deceased held a large BTP portfolio, a good part of the estate may never enter the calculation. The US still sees those bonds the moment they land in your name.

Property Transfer Taxes and Cadastral Value

The succession tax is only part of the bill for real estate. When property passes by inheritance, Italy also charges the imposta ipotecaria and the imposta catastale. These are mortgage-registry and land-registry taxes connected to recording the change of ownership. They apply whatever your relationship band, so even a child who owes zero succession tax will usually pay something to register the transfer.

There is relief. If the heir qualifies for the first-home benefit, the agevolazione prima casa, those registry taxes drop to fixed amounts instead of being calculated on value. Qualifying usually depends on residence conditions and on not already owning a similar home in the same comune. A US-based heir often cannot meet those conditions. An heir living in Italy frequently can.

Value is the next point, and it matters a great deal for the US side later. For succession purposes, Italian residential property is usually valued using its cadastral value: the rendita catastale from the land registry, revalued and multiplied by a coefficient set by law. That figure is often far below what the property would sell for. To understand how the registry works and how to read a visura, see Understanding the Italian Land Registry (Catasto). Keep that low cadastral number in mind. It is correct for Italy and inappropriate for America.

Filing the Dichiarazione di Successione Step by Step

The dichiarazione di successione is the Italian inheritance declaration. It must be filed within a statutory window counted from the date of death. Confirm the current deadline with your notary or the Agenzia delle Entrate, because late filing brings penalties and interest. The process usually runs like this:

1. Obtain the death certificate and, if there is a will, have it published by a notary. Without a will, intestate rules under the Italian civil code decide who inherits and in what shares.
2. Make sure every heir has an Italian tax code. Each heir must appear in the declaration with a codice fiscale. If you live in the US and do not have one, get it through an Italian consulate or a representative; see How to Get a Codice Fiscale in Italy (and Why You Need One).
3. Decide how to accept. Heirs can accept outright, accept con beneficio d’inventario to limit liability to the value of the estate, or renounce. If debts might exceed assets, take advice before accepting.
4. Gather asset documentation: bank statements as of the date of death, cadastral extracts for each property, statements for securities and funds, and details of vehicles or business interests.
5. File the declaration electronically with the Agenzia delle Entrate, usually through a commercialista, a CAF, or a notary acting on your behalf.
6. Pay the succession tax, if any, along with the registry taxes on property through the F24 payment system. For paying from a US account, see Paying Italian Property Tax Bills From Abroad: F24 Forms and Transfer Routes.
7. Complete the voltura catastale, the land-registry update that puts inherited property in your name. This step is often handled together with the declaration.
8. Present the filing receipt to the deceased’s bank so frozen accounts can be released or transferred to the heirs.

Hold on to every receipt, the filed declaration, and the bank’s statement of balances at the date of death. The Agenzia delle Entrate needs them, and your US preparer will ask for the same documents to complete your American filings.

What the IRS Actually Wants From the Heir

With Italy settled, the focus moves to America. The IRS does not want a share of your inheritance. It wants to be told about it, and it wants accurate records so it can tax future income and gains correctly.

No US Inheritance Tax, But a Reporting Duty: Form 3520

When a US person receives a bequest from a foreign person who is not a US citizen or resident, the receipt is generally not taxable income. If the amount crosses the IRS reporting threshold, you must report it on Form 3520, Part IV. The threshold is set by the IRS and adjusted periodically, so check the current figure in the Form 3520 instructions. Distributions from a foreign estate count, as do gifts the deceased made during their lifetime.

Form 3520 is filed separately from your Form 1040, not inside it, and follows its own submission instructions. It is due on the same date as your income tax return, including extensions. The form asks for a description of what you received and its value. Monetary values are reported in US dollars, so keep a record of the exchange rate you used and the date it applied to.

The penalty for late or missing reporting of a foreign bequest is calculated as a portion of the unreported amount and can build up over time. That is why the IRS does take an interest in a transfer it does not tax. If you file on time, the cost is a few hours and some careful records. The IRS does have a process for showing reasonable cause, but it is not something to rely on. This is one of the core filings Taxes for Expats prepares for heirs of foreign estates, and getting it right the first time is the cheapest outcome.

When the Deceased Was American: US Estate Tax and the Treaty

The picture changes if the person who died was a US citizen or US domiciliary. Think of an American parent who retired to Lucca, or an Italian-American grandparent who kept US citizenship. The US estate tax applies to a US citizen’s worldwide estate, including the Italian property. Whether any US estate tax is actually due depends on the size of the estate compared with the federal exemption. That exemption is large and is changed by legislation, so check the current figure with the IRS or your adviser.

Italy will still tax the Italian assets through its succession tax. To prevent double taxation, the US provides a credit for foreign death taxes. The US and Italy also have a separate estate tax treaty, distinct from the income tax treaty, which sets rules for which country has primary taxing rights over which assets and how credits are given. An estate in this position may need a US estate tax return even when the final US liability is zero, especially when the surviving spouse wants to preserve the deceased’s unused exemption.

There is a mirror-image case. If the deceased was an Italian national who was not a US person but owned US-situs assets, such as American real estate or shares in US companies held at a US broker, the US estate tax can reach those specific assets. The nonresident exemption is much smaller than the one for citizens, and a separate return exists for these estates. Inheriting a share of Nonna’s US brokerage account can therefore be more complicated, from a US perspective, than inheriting her house in Puglia.

Basis, Valuation and the Two-Value Problem

The point I most want you to remember from this guide is that inherited assets in the US generally receive a basis equal to their fair market value at the date of death. That stepped-up basis is what you subtract from the eventual sale price to calculate a taxable gain. A higher basis means a smaller gain and less US tax when you sell.

Italy, as described above, values inherited property using the cadastral value, which is usually well below market. That number is correct for the Italian succession declaration. It is the wrong number for your US basis. Use the cadastral figure on your American return and you could hand the IRS a gain that does not really exist when you sell years later, paying US capital gains tax on value you never actually gained.

The fix is simple and much easier to do now than later. Commission an independent appraisal, a perizia di stima, from a qualified Italian surveyor or geometra. It should establish the market value at the date of death, and it should be kept in your permanent records alongside the succession filing. Having two different values for one property is entirely legitimate, because each country applies its own rule. Taxes for Expats will ask for this appraisal when preparing your basis records, so it pays to commission it while memories and comparable sales are fresh.

The Reporting Duties That Start After You Inherit

Form 3520 is a one-time filing for the bequest. What follows is ongoing: annual reporting of accounts, income, and eventually sales. This is the stage where heirs who handled the inheritance perfectly can slip up a year or two later.

Inherited Bank Accounts: FBAR and Form 8938

If an Italian bank account passes into your name, or you open one to receive your share, it becomes a foreign financial account for US purposes. If the combined maximum balance of all your foreign accounts crosses the FBAR threshold at any point in the year, you must file FinCEN Form 114. It is submitted electronically to the Financial Crimes Enforcement Network, not to the IRS with your return. The threshold applies to the total across all accounts, so several modest Italian accounts can trigger it together.

Signature authority alone can create an FBAR obligation. If you act as executor or have signing authority over the deceased’s Italian account while the estate is being settled, you may need to report that account even though it was never yours. Ask about this specifically, because the period of administration can cross a year-end.

Separately, Form 8938 under FATCA is filed with your Form 1040 when your specified foreign financial assets exceed thresholds that depend on filing status and whether you live in the US or abroad. The two forms overlap but are not identical. Some assets go on one and not the other, and you may need to file both for the same account. For a side-by-side breakdown, see FATCA Form 8938 vs FBAR: What Americans in Italy File and When. If you live in Italy, you also report foreign-held assets to Italy in the Quadro RW of your Italian return. See Quadro RW and FBAR Together: The Same Assets Reported to Two Countries for how the two regimes line up.

Inherited Property: Rental Income, Sale, and Italian Annual Taxes

Real estate held directly in your own name is not reported on the FBAR or, in most cases, on Form 8938. That frees you from one set of forms. It does not free you from tax. If you rent out the inherited flat, Italy taxes the rental income, potentially under the cedolare secca flat-rate option, and the US taxes the same income on your 1040. Foreign tax credits normally prevent double taxation. For how the two countries allocate taxing rights on income, see The US-Italy Tax Treaty: How Americans Avoid Being Taxed Twice.

If you live in the US and keep the inherited property in Italy, you will also face Italy’s annual property tax, IMU, on homes that are not your Italian primary residence, plus the local waste tax. How those charges interact with your American filing is covered in Owning Italian Property but Living in the US: IMU Plus Your 1040. Americans resident in Italy who own property abroad deal with IVIE instead, but that applies to foreign property, not the Italian flat you inherited.

When you eventually sell, Italy may or may not tax the gain depending on its own rules for inherited property. The US will calculate gain from your stepped-up basis, and this is where the date-of-death appraisal becomes valuable. Currency adds another layer: the IRS measures gain in dollars, so exchange rate movements between inheritance and sale can create gains or losses of their own. For the full mechanics, see Selling Italian Property as a US Citizen: Running the Gain Through Two Tax Codes, and for moving the money home, Selling Italian Property and Repatriating the Proceeds.

Inherited Investments and the PFIC Trap

Italian families often hold savings in bank-distributed mutual funds, the fondi comuni di investimento sold at every branch of the big Italian banks. For an Italian resident these are ordinary products. For a US person, a non-US mutual fund is almost always a Passive Foreign Investment Company, or PFIC, and PFICs carry some of the harshest tax treatment in the US code.

Unless you make certain elections, gains and some distributions from a PFIC are taxed under a punitive regime that can include interest charges, and each fund generally needs its own Form 8621. When you inherit a PFIC, the usual step-up in basis may not apply in the way you expect. Get advice before deciding whether to keep, sell, or switch the investments. Selling soon after inheritance, before value builds up, is often the simplest route, but the right choice depends on the specific funds.

For a full explanation, see Italian Investment Funds and PFIC Rules: The Trap Americans Fall Into. Treat any inherited Italian investment account as a priority item for your US adviser. Taxes for Expats deals with PFIC reporting regularly and can tell you whether the funds you inherited fall into this category before you make an expensive decision.

Real-Life Scenarios

Abstract rules only go so far. Here are three composite situations based on the kinds of cases I have seen among friends and readers. They are not legal templates, but they show how the pieces fit together.

Scenario One: Living in Bologna, Inheriting From an Italian Parent

Marco is a US citizen through his American mother. He grew up and still lives in Bologna. His father, an Italian national and Italian resident, dies and leaves Marco and his sister the family apartment in the city centre, a current account, and a portfolio of Italian mutual funds and BTPs.

On the Italian side, Marco and his sister are in the direct-line band, and their shares fall within the per-heir exemption, so no succession tax is due. The BTPs are excluded from the base anyway. They pay registry taxes on the apartment. Because Marco lives in Bologna and does not own another home there, he qualifies for the first-home benefit, which reduces those taxes to fixed amounts. Their commercialista files the dichiarazione and the voltura.

On the American side, Marco files Form 3520 to report the bequest, because his share exceeds the IRS reporting threshold. The inherited current account pushes his foreign account total above the FBAR and Form 8938 thresholds, so both forms are needed, but as an Italian account it does not go on his Quadro RW. His US adviser flags the Italian mutual funds as PFICs and recommends selling them early, and Marco commissions a perizia on the apartment to set his US basis. Each of those steps is routine on its own. The coordination between them is where professional help pays for itself.

Scenario Two: Living in Ohio, Inheriting a Share of a Calabrian House

Teresa lives in Columbus and has never lived in Italy. Her great-aunt in a small Calabrian village dies without children and leaves her house to Teresa and two cousins. Teresa is a more distant relative, so she falls into a band with no dedicated exemption, and Italian succession tax applies to her share. Because the house is valued at cadastral value, the bill stays modest. She also pays registry taxes. She cannot claim the first-home benefit because she does not live in the comune.

Before anything is filed in Italy, Teresa needs an Italian codice fiscale, which she obtains through the consulate. She grants a power of attorney to a local professional so she does not have to fly over for every step. Her US obligations are lighter than Marco’s: Form 3520 if her share crosses the reporting threshold, and no FBAR unless she opens an Italian account. She decides to open one, because the cousins want to split IMU and maintenance costs from a shared fund, and that brings the account reporting into play.

Two years later the cousins sell. Because Teresa had an appraisal done at the date of death, her US basis reflects the real market value, not the much lower cadastral figure. Her US gain is small and mostly comes down to currency movement. Without that appraisal, she would have been arguing with a much larger and largely fictional gain.

Scenario Three: An American Parent Who Retired to Umbria

Robert, a US citizen, retired to a village near Perugia. He lived there for years, owned a farmhouse, kept accounts at an Italian bank and a US brokerage, and left everything to his two American daughters. Because Robert was an Italian resident, Italy’s succession tax applies to his worldwide estate, not just the Italian assets. The daughters, as direct-line heirs, benefit from the large exemption for their band.

Because Robert was a US citizen, the US estate tax also reaches his worldwide estate. Whether a US return is required and whether tax is due depends on the estate’s size compared with the current federal exemption. If any tax is due in both countries, the estate tax treaty and the foreign death tax credit decide which country taxes what and how credits apply. This is technical work, and it is where specialists in both systems really earn their fees.

The daughters do not file Form 3520 for this inheritance, because the decedent was himself a US person. That form covers bequests from foreign persons. They do inherit Italian accounts, which brings FBAR and possibly Form 8938 obligations, and they inherit a farmhouse whose US basis needs a proper appraisal. The lesson is that the deceased’s own status changes which American forms apply, and getting that classification right is the first job.

Getting It Right Without Losing Your Mind

You do not need to become an expert in two tax systems. You need good records, a clear sequence, and the right people. Here is how I would approach it if a call from Italy came tomorrow.

Building Your Paper Trail

Everything on both sides depends on documentation. Start a dedicated folder, digital and physical, on the day you learn of the inheritance, and collect the following:

• The death certificate and, if applicable, the published will or the notarial deed identifying the heirs.
• The filed dichiarazione di successione, the Agenzia delle Entrate receipt, and every F24 payment receipt.
• Bank statements showing balances on the date of death and the date funds were transferred to you.
• Cadastral extracts for each property and the completed voltura.
• An independent market-value appraisal of each property as of the date of death.
• Statements for every inherited investment, with fund names and identification codes, so your US adviser can screen for PFICs.
• A record of the exchange rates used to convert euro values into dollars for each US filing, with the date each rate applies to.
• Copies of any power of attorney you signed and the professional’s contact details.

For practical detail on receiving and documenting money that arrives from an Italian estate, see Receiving an Inheritance From Abroad in Italy: Mechanics and Documentation. That folder is what both your Italian and American professionals will work from, and it is what protects you if either tax authority ever asks questions.

This table summarises which form applies in which situation, using the same categories as the sections above:

Situation	Italian Obligation	US Obligation	Filed With
Receiving any inheritance from an Italian estate	Dichiarazione di successione and succession tax if above the exemption	None for the transfer itself	Agenzia delle Entrate
US person receiving a bequest from a foreign non-US person above the IRS threshold	None beyond the succession filing	Form 3520, Part IV	IRS, separately from Form 1040
Deceased was a US citizen or domiciliary	Succession tax on the assets within Italy’s reach	Possible US estate tax return, with treaty and foreign death tax credit relief	IRS, by the estate
Inherited Italian bank accounts above the FBAR aggregate threshold	Quadro RW only for assets held outside Italy	FinCEN Form 114	FinCEN, electronically
Specified foreign assets above the FATCA threshold for your status	Quadro RW only for assets held outside Italy	Form 8938	IRS, with Form 1040
Inherited Italian mutual funds	Taxed under Italian investment rules	Form 8621 for each PFIC	IRS, with Form 1040
Renting out inherited property	Italian income tax or cedolare secca	Rental income on Form 1040 with foreign tax credit	Both tax authorities
Selling inherited property	Italian rules on gains from inherited property	Capital gain from date-of-death fair market value	Both tax authorities

Why a Specialist Like Taxes for Expats Beats Going It Alone

I am a do-it-yourself person by nature. I have built IKEA wardrobes in Italian flats where nothing is square. Even so, I would not handle a cross-border inheritance alone. The forms are not hard to fill in mechanically. What is hard is knowing which forms apply, which values to use, and how decisions made in Italy affect the US for years. Here is an honest comparison of the options.

Approach	Strengths	Weaknesses	Best For
Doing the US side yourself	Lowest direct outlay	High risk of missing Form 3520, PFIC issues, or using cadastral value as basis	Very simple cash-only bequests below reporting thresholds
General US preparer	Familiar with domestic returns	Often unfamiliar with Italian documents, foreign estates, and PFIC elections	Heirs with an otherwise purely domestic US situation
Italian commercialista only	Expert on the dichiarazione and Italian taxes	Generally does not prepare US forms	Handling the Italian half of the job
Expat tax specialist such as Taxes for Expats, working alongside an Italian professional	Covers Form 3520, FBAR, Form 8938, Form 8621, basis records and foreign tax credits as one picture	A professional fee; check the provider’s own page for current pricing	Most US heirs of Italian estates

The right setup for most heirs is a two-person team. An Italian professional handles the succession, and you can find one by following Choosing a Commercialista (Accountant) in Italy. An American expat tax specialist handles everything the IRS and FinCEN need. Taxes for Expats works with Americans in exactly this position. It can review your Italian documents, confirm which US forms you owe, set up your basis records properly, and prepare your returns for the years after the inheritance as well. Check their website for current service options and fees, and contact them as soon as the Italian process begins, not after the US deadline has passed.

Catching Up If You Already Missed a Filing

Perhaps you are reading this two years after the inheritance and realise you never filed Form 3520, never reported the Italian account on an FBAR, or never knew the funds were PFICs. Take a breath. This is a common situation, and the IRS has structured ways for people acting in good faith to come back into compliance.

For US citizens abroad whose missed filings were not willful, the Streamlined Foreign Offshore Procedures and related options allow you to file late returns and information forms, often with reduced or eliminated penalties. The details and eligibility are covered in Streamlined Filing Procedures: Catching Up on Missed US Returns From Italy. Missed Form 3520 filings may need a separate reasonable-cause statement. Which path is right depends on your facts, so this is not something to guess at.

What you should not do is quietly start filing correctly from this year onward without fixing earlier years. A sudden appearance of foreign accounts can draw attention, and leaving earlier gaps open closes off the more forgiving options. A specialist like Taxes for Expats can review what was missed, recommend the right compliance route, and prepare the catch-up package so you can move on and enjoy what you inherited. Whether that is a sea-view flat, a farmhouse in the hills, or simply the knowledge that your family’s savings arrived safely, you deserve to be done with the paperwork.

Disclaimer

This article is for general informational purposes only and does not constitute professional advice. Laws, prices and regulations vary by location and change over time. Consult a qualified professional for guidance on your specific situation.