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Old 01-30-2007, 11:57 AM
control-z control-z is online now
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Declaring inherited money on tax return?

I inherited around $15,000 from a relative last year. A woman I know that does taxes says that I don't need to pay estate taxes on that amount of money, it's around $600,000 where estate taxes kick in.

However, is estate tax different from income tax? Do I have to add the $15,000 to my income? I'm afraid the answer is yes, and I'll probably owe the IRS 3 or 4 thousand dollars on money they should have nothing to do with.
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  #2  
Old 01-30-2007, 12:03 PM
RickG RickG is offline
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Quote:
Originally Posted by control-z
I inherited around $15,000 from a relative last year. A woman I know that does taxes says that I don't need to pay estate taxes on that amount of money, it's around $600,000 where estate taxes kick in.

However, is estate tax different from income tax? Do I have to add the $15,000 to my income? I'm afraid the answer is yes, and I'll probably owe the IRS 3 or 4 thousand dollars on money they should have nothing to do with.
Disclaimer: I am not an account, nor an estate lawyer. However, I did inherit a small amount of money from my grandfather a few years ago.

Estate taxes, if any, are paid by the estate, not the heirs. By the time you got it, any taxes should have been paid. You don't declare inherited money (at least not that kind of inherited money) on your tax returns.

-Rick

Last edited by RickG; 01-30-2007 at 12:04 PM..
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Old 01-30-2007, 12:07 PM
DrDeth DrDeth is offline
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Right, you don't declare it at all. Of course, if after it gets into your hands, it has earned interest etc, that portion is reportable and taxable.
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Old 01-30-2007, 12:14 PM
control-z control-z is online now
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I was the administrator of the estate, but I don't remember paying any federal taxes, just county. Do the feds get a cut of that, or do they get nothing?
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Old 01-30-2007, 12:49 PM
Otto Otto is offline
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Quote:
Originally Posted by control-z
I was the administrator of the estate, but I don't remember paying any federal taxes, just county. Do the feds get a cut of that, or do they get nothing?
The state/county taxes are separate from the federal tax burden. The estate would have to be valued at somewhere over a million dollars last year (I think it's up over a million now) before there would be any federal tax liability. But as has been noted, that is paid out of the estate before any bequests are distributed. IANAL, etc.
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Old 01-30-2007, 12:52 PM
control-z control-z is online now
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That's good news because I'm buying a house right now and definitely can't afford 3 or 4 thousand in taxes!
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  #7  
Old 01-30-2007, 12:57 PM
Gfactor Gfactor is offline
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Quote:
Originally Posted by Otto
The estate would have to be valued at somewhere over a million dollars last year (I think it's up over a million now) before there would be any federal tax liability. But as has been noted, that is paid out of the estate before any bequests are distributed. IANAL, etc.
Right.

Quote:
To reemphasize: Most relatively simple estates (cash, publicly traded securities, small amounts of other, easily valued assets and no special deductions or elections or jointly held property) with a total value under $1,000,000 and a date of death in 2002 or 2003 and $1,500,000 and a date of death in 2004 or 2005 do not require the filing of an estate tax return.
http://www.irs.gov/businesses/small/...=98968,00.html
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  #8  
Old 01-30-2007, 01:11 PM
teela brown teela brown is offline
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When I got an inheritance a couple of years ago, the estate's attorney did not inform us that part of the check was the inheritance, and part was income that the estate earned since the death of my aunt. So I owed taxes on the estate's income, but not on my inheritance. Make sure that what you received is ALL inheritance, so you don't get a nasty surprise like I did.
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Old 01-30-2007, 01:49 PM
Polycarp Polycarp is offline
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As I recall having seen this question raised in the past, a bequest is deemed a gift from the estate of the deceased, and (IIRC) like any gift, you do not owe income taxes on it. However, as teela brown notes, this references the principal of the bequest. You are entitled to your fair share of whatever interest the estate accrued while it was being settled, and on that interest you do owe taxes, much the same as any other interest income.

IANAL, IAN most emphatically ATaxL, and the above is simply what I recall reading in numerous such past discussions. It would not hurt to confirm this with your local IRS office, a tax preparer who is a friend or the one you patronize, a NFP which provides tax preparation help for people this time of year, etc.
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Old 01-30-2007, 02:12 PM
AuntiePam AuntiePam is offline
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I didn't have to pay income taxes on what I inherited from my mom, which came from the sale of her house.

However, my four kids had to pay income tax on money they inherited from my brother. The kicker, I believe, was that the money came from his (pre-tax) 401-k. However, the proceeds from the sale of bro's house weren't taxed.

I guess all money isn't the same.
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  #11  
Old 01-30-2007, 04:19 PM
Mama Zappa Mama Zappa is offline
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Quote:
Originally Posted by teela brown
When I got an inheritance a couple of years ago, the estate's attorney did not inform us that part of the check was the inheritance, and part was income that the estate earned since the death of my aunt. So I owed taxes on the estate's income, but not on my inheritance. Make sure that what you received is ALL inheritance, so you don't get a nasty surprise like I did.
Very true!!! The people handling the estate should document everything. I forget the document we got but "K-1" sounds vaguely familiar. We did have to document that info on our tax return when my mother's estate was settled - it was a few hundred dollars in income.

We inherited some money from another relative some years past and there was a *lot* of capital gains income, before we even received any money from the estate. On the order of several thousand in extra taxes due from us to Uncle Sam. THAT was painful (we had to pay that, months before the estate was actually paid to us).
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  #12  
Old 01-30-2007, 04:24 PM
ASAKMOTSD ASAKMOTSD is offline
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Did you folks know that you can also ask questions like this of your handy tax adviser (usually for free?) I know that I can call my tax adviser at H&R Block Premium (note that I said Premium) and ask questions relating to taxes at no charge. The reason I stressed the "Premium" is that they are the ones that deal with the estates, trusts, and more complex returns. Therefore they are the ones with that tax knowledge.

Good luck!
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