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overseas teache · Jul 10, 2009, 08:11 AM

I know there is Federal Inheritance tax (and you must inherit more than a million dollars for that to kick in). However, if you receive an inheritance less than a million, do you have to pay regular income tax?

ebaines · Jul 10, 2009, 09:04 AM

Short answer is "no." But let me clarify:

1. There is NO federal inheritance tax. There IS a federal estate tax - the difference is that with an inheritance tax the heirs have to pay; with an estate tax the tax is paid out of the assets of the estate before they are distributed to the heirs. So with estate taxes you as the heir have no responsibility for figuring out whether any estate taxes are due or how much they are - this is the responsibility of the executor. So no - as the heir you do not need to worry about either federal estate or inheritance taxes.

2. However, there MAY be an inheritance tax in the state you live in - you can check here to see: Taxes by State If your state has an inheritancetax, you will have to pay that yourself.

3. If estate tax is owed to the state, again it's the executor's responsibilit to figure that out, not you.

4. In any event, you do not pay any income tax on your inheritance, and you do report it inheritances on your 1040 form. The one complication here is that it's possible that the estate may earn income that is allocated to you for income tax purposes, in which case you will get a schedule K-1 from the executor. But this is a bit unusual, especially if the value of the estate is under the estate tax threshold.

George Leigh · Jul 10, 2009, 09:14 AM

Basically and I'm no expert once you get your distribution from an estate, like a check from the estate lawyer, all the taxes and fees are already taken out, you inherit tax free, but if the money earns interest after the time you get control of it, you may or may not owe taxes based on the interest amount only, not the principal.

JudyKayTee · Aug 13, 2009, 05:55 AM

Originally Posted by George Leigh

basically and I'm no expert once you get your distribution from an estate, like a check from the estate lawyer, all the taxes and fees are already taken out, you inherit tax free, but if the money earns interest after the time you get control of it, you may or may not owe taxes based on the interest amount only, not the principal.

This is not correct in all States.