Inheritance - is it subject to income tax in the US?

[Sun]

Dealing with a loved one's death is hard enough emotionally, but now we're at the point where we have to look at estate settlement issues, which are just confusing. Does anyone know about the tax laws for inheritance in the US?

 

I know that there is an inheritance tax if the estate of the deceased person is worth more than a certain amount (2 million? 3 million?). I haven't been able to determine if the inheritance is subject to income tax, though. Are small inheritances (in other words, way below the inheritance tax amount) subject to income tax? In other words, do I report it as income and pay income tax on it? And if so, would that be in the year the person died, or the year the inheritance was actually received?

 

Thank you! :bigear:

[Hoggirl]

If the value of the estate is high enough (not sure what that amount is these days), there is a tax return that must be filed by the estate and estate tax is paid. Distributions to beneficiaries are not taxed. In other words, those who receive distributions from the estate do not pay income tax on amounts received.

 

As with most tax issues, there are many "it depends" situations, but the above would be the general rule.

[laundrycrisis]

I would suggest using a CPA for the tax year you inherit anything, and if you are the person dealing with the estate, I would also get professional help with the accounting and taxes for the estate. The accounting fees for the estate can be paid for by the estate. This is based on my experience with inheriting from my father. If my brother had not used a CPA and a lawyer for the estate, it would not have been handled correctly, and if I had not used a CPA for our taxes, I would have made quite a few mistakes.

[datgh]

Get yourself a lawyer and a CPA. It will be worth every penny even if it isn't a real big estate!! It is all just to complicated to go it alone and if you make a mistake you will probably end up paying more. I was executor of my uncles estate and it was such a relief to turn everything over to the professionals and just sign on the bottom line.

[Unicorn.]

You do have to pay tax on any annuities though, so watch out for that. I think the inheritance tax comes into play after 1 mill, but annuities, etc are considered income-you should recieve a form to sign, fill out, and return on those from the investment company though. Just wanted to give you a heads up, because I got one that was from a company that also had life insurance (which is not taxable) and it didn't specify wether it was investment or life ins. and I didn't check the witholding box. Needless to say, dh and I didn't get back as much money on our return that year. :P

[Sun]

You do have to pay tax on any annuities though, so watch out for that. I think the inheritance tax comes into play after 1 mill, but annuities, etc are considered income-you should recieve a form to sign, fill out, and return on those from the investment company though. Just wanted to give you a heads up, because I got one that was from a company that also had life insurance (which is not taxable) and it didn't specify wether it was investment or life ins. and I didn't check the witholding box. Needless to say, dh and I didn't get back as much money on our return that year. :P

 

Does this also include retirement accounts that were funded with pre-tax dollars?

 

Thank you to everyone who has weighed in! I will definitely talk to the estate's lawyer and a CPA.