A new 3D controlled-source electromagnetic finite element (FE) modeling algorithm is presented which is capable of handling local inhomogeneities in the magnetic permeability and electrical conductivity distribution of buried geologic and anthropogenic structures. An ungauged, coupled-potential formulation of the governing electromagnetic vector diffusion and scalar continuity equations is used. The formulation introduces magnetic reluctivity, the inverse of magnetic permeability, to facilitate a separation of secondary and primary potentials. The governing equations are solved using a tetrahedral edge-based FE method. The postprocessing steps to obtain electromagnetic fields are outlined. The code is validated for non-magnetic and permeable conductive structures by comparisons against analytic and previously published numerical solutions. Some limitations of the implementation are explored and directions are proposed for its further development.