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Is My Inheritance Taxable?

In most cases, an inheritance is not subject to income taxes. This includes the value of accounts, stocks, bonds and property received because of death of the owner, as well as proceeds of life insurance policies. There are several exceptions:

  • Income earned by assets of the estate AFTER the date of death are generally taxed to the estate, or, if distributed, to the beneficiary. This would include interest on bank deposits, dividends on stock, rent collected from rental properties, etc.
  • If you inherit a pension or Individual Retirement Account from the deceased, the payments are generally taxable to you when withdrawn in the same manner in which they would have been taxed to the deceased if withdrawn during his lifetime. Unless you are the deceased's spouse, you cannot rollover these funds to an IRA in your own name. However, you may have some options as to how quickly to withdraw the money, and this should be discussed with a tax professional or attorney familiar with the estate.
  • Deferred Annuities including Variable Annuities are also taxed in the same manner as they would have been taxed to the owner during their lifetime.  Good records can help reduce taxes because you will know the cost basis of the original owner
  • If you sell property that you inherit, you may have a gain or loss to recognize. For more details see the report "I Sold Something I Inherited".

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Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017