Posted: 3/11/2013 7:04:33 AM EDT
| Is money received from an inheritance taxable ? |
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Potentially.
If the size of the estate (bringing things that passed outside of the estate such as life insurance, beneficiary designations, etc) exceed the federal exemption and tax is due at the estate level, the amount of taxes can be apportioned among those receiving assets directly. If you receive an IRA or 401K through a beneficiary designation then the distributions are likely taxable. You can also get hit with capital gains if an asset appreciates between the date of death value of an asset and when you sell it. For instance, if you inherit a bond with a fair market value of $100,000 at the time of the decedent's death and you sell it a year later for $110,000, you could pay capital gains on the $10,000. In a simple estate, e.g. well below the federal exemption level where all assets flow through the estate to you then, typically no (aside from the potential capital gains issues described above). This only applies to federal taxes. That being said, many states tie their tax to the federal estate tax rules for simplicity. ETA: This is a broad brush overview. Very basic. You get into the weeds with many things related to estate taxes. The correct answer is potentially. |
| The inheritance will be strictly a lump sum cash payment. One of my siblings is the executor of the estate. All liquid assets from the deceased ; insurance, checking and savings, bonds etc .... are being divided equally. Likely to be under 100K when it's all said and done. The deceased owed no money house, car all paid for and beneficiarys are in agreement with the will so we aren't expecting any surprises in probate. |
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As long as the estate is under 1.5 mil (cash) you should have no tax liability or reporting requirements. If you are receiving the deceased's retirement vehicles such as an IRA you will have reporting to do. I thought the limit was 5 mil now? You are correct. With the Bush tax cuts expiring in 2012, the estate tax was set to return to a 1 million exemption, taxed at 55% beyond that. However, with the passage of the so-called "American Taxpayer Relief Act of 2012" which was passed to avoid the "fiscal cliff" this was set to a 5 million dollar exemption, and 40% tax burden beyond that. Keep in mind, there is zero confidence this will last forever. While I don't believe the government should be able to re-tax money/assets passed on from generation to generation... the current 5 million exemption covers the massive majority of Americans, and this is a good thing. However, when you look historically at this, it has been a yo-yo. In 2001, the exemption was a mere $675,000. In 2002-2003, it was 1 million. In 2009 it went up to 3.5 million. In 2010, it went to ZERO TAX. Now its back up to 5 million.... for now. This concept of screwing the rich with a "death tax" didn't even exist until 1916, more of 'Woodrow Wilson's wonderful legacy to devastating this country. |
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Is money received from an inheritance taxable ? If you are in GA and you inherit money, you are not subject to tax. You do not have income when you inherit money. The estate might be subject to taxation, but that is not your concern. You are not the executor. |
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Is money received from an inheritance taxable ? If you are in GA and you inherit money, you are not subject to tax. You do not have income when you inherit money. The estate might be subject to taxation, but that is not your concern. You are not the executor. This is not necessarily true, like mentioned it depends what is being inherited. I just went thru this last year. The house, car and bank accounts - No Tax, No reporting IRAs, 401ks, Thrift savings plans, retirement accounts - Taxed, unless there is a provision that it can be rolled over into an Inherited IRA account, this is usually only available to spouses. But this gets even more complicated at a state level. Im in Florida, family member passed away in a state with a state income tax. My siblings live in states with state income taxes. They have to absorb the income from the state of death onto their own state income tax return. I dont have a state return to file and the state of death has a provision that says I didnt have to pay Non Resident Income tax on retirement accounts. Yea, it gets complicated . lol Life Insurance, whether the estate is the beneficiary or individual - No Tax, No reporting. And yes, we had a family member leave life insurance to the estate. Cashed out stocks, etc - Capital gains only if gains were made after the date of death, like mentioned above, stock with 10k at time of death, but earned 5k before being cashed out, now there are capital gains to be paid. In the case with my family , we all elected to let the beneficiaries pay the taxes, while this made each individual responsible for their own taxes, it gave each person more money in the end. An estate gets taxed higher, sooner than individuals. |
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Did you read what I wrote? If you inherit MONEY (cash, checking account, CDs, savings, etc) it is NOT income. IRAs are NOT income. 401ks are NOT income. If your spouse dies, their IRA/401k can be rolled into yours and you do not have to take distributions, so no income. If your uncle dies and leaves it to you, you can't combine with yours, you get an FBO and then you have to take distributions (will be code 4 in box 7 of the 1099-R). THOSE are taxable when WITHDRAWN. So to review, if you inherit an IRA from you uncle of 100k in 2013, the 100k of IRA is NOT taxable income to you UNTIL you actually take distributions from it. So, if you take the 5 year plan, you will take out 20k each year and that will be taxable income to you in the year you take the distribution, if it is from a traditional IRA. This is from a federal perspective.
In GA, inheriting CASH MONEY is NOT TAXABLE. CASH. Bank account, CD, Savings. That is CASH. It is not INCOME. I hope this makes sense. BTW, I manage tax advisors and inherited propery is a role play exercise I conduct several hundred times per year when evaluating candidates for the positions available. You would be surprised at the notion that many "tax pros" to include CPAs and EAs do NOT know this area very well. ETA: The point I am trying to drive home is that the act of receiving an IRA as an asset is not the taxable transaction for income. What is potentially subject to tax is the withdrawals in the year of withdrawal. But what if the IRA is a ROTH? Or what if you have a ROTH 401k? Different treatment. Quoted:
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Is money received from an inheritance taxable ? If you are in GA and you inherit money, you are not subject to tax. You do not have income when you inherit money. The estate might be subject to taxation, but that is not your concern. You are not the executor. This is not necessarily true, like mentioned it depends what is being inherited. I just went thru this last year. The house, car and bank accounts - No Tax, No reporting IRAs, 401ks, Thrift savings plans, retirement accounts - Taxed, unless there is a provision that it can be rolled over into an Inherited IRA account, this is usually only available to spouses. But this gets even more complicated at a state level. Im in Florida, family member passed away in a state with a state income tax. My siblings live in states with state income taxes. They have to absorb the income from the state of death onto their own state income tax return. I dont have a state return to file and the state of death has a provision that says I didnt have to pay Non Resident Income tax on retirement accounts. Yea, it gets complicated . lol Life Insurance, whether the estate is the beneficiary or individual - No Tax, No reporting. And yes, we had a family member leave life insurance to the estate. Cashed out stocks, etc - Capital gains only if gains were made after the date of death, like mentioned above, stock with 10k at time of death, but earned 5k before being cashed out, now there are capital gains to be paid. In the case with my family , we all elected to let the beneficiaries pay the taxes, while this made each individual responsible for their own taxes, it gave each person more money in the end. An estate gets taxed higher, sooner than individuals. |