Federal Inheritance tax questions

Factual Questions
1

I Googled “inheritance tax” and got all sorts of hits, mostly trying (unsuccessfully as far as I am concerned) to explain the difference between “estate tax” and “inheritance tax.”

I am retired with a modest annual income. Next month I am due to inherit about $150K in cash from a relative.

I sort of recall that no tax will be owed unless the bequest is over $2 million, or some such amount.

All I want to know is:

  1. Will any tax be owed on this?

  2. Do I have to report this when I file my 1040 form, even if no tax is owed?

2

Estate taxes (if there are any) are paid by the estate, before any disbursements are made. You won’t owe any federal estate taxes on your inheritance.

Dunno about reporting requirements.

3

The estate is obligated to pay any taxes or debts before the beneficiaries get their money, so once you get the money, it’s yours. (I think there are some small exceptions around maybe annuities or IRAs, but I don’t know of any exceptions around cash.)

If the deceased died during 2010 there is no federal estate tax. As of January 1, the exemption for estate taxes will be 1 million dollars, with everything over that subject to a 55% estate tax.

Like friedo, I don’t know if there are any reporting requirements, though I doubt it since they are not taxable at the recipient level.

4

The inheritor has to report nothing if they inherit cash. If you inherit property, whether that be stock or a house or whatever, then you owe no tax, but if you sell it for more than what it was worth at the decedent’s date of death you will owe capital gains on the difference. If you inherit a retirement account or annuity then you will be in a somewhat trickier tax situation, but I won’t bother describing those unless that is the case with you.

5

I think you would owe taxes on any investment or savings income made by the inheritance since the date of death. That’s not going to be a lot with today’s interest rates, but I think you’d still owe a bit.

6

Thanks folks, for the clear and concise answers. Google-fu went nuts on this matter, bogged down in lawyer-talk

I guess I’m home-free on taxes.

I use Tax Act, so I expect unless they ask the question, it does not have to be reported. I’ll find out when I do it. Been using it for years, and it almost makes doing taxes fun.

7

If you had left out the “almost” I would have suggested using some of your inheritance for a therapist. :smiley: