@Wfjdi0r wrote:
I thought inheritance income was not taxed on federal forms. I filled out schedule k-1 form 1041 and saw that my my federal refund was reduced by $500+.
Box 5 on Schedule K-1 (1041) indicates the estate (or trust) generated income that was passed through to you as a beneficiary. The box 14 entry was likely a negative adjustment for NIIT (net investment income tax) which will probably not affect your return.
An inheritance is generally not taxable to the heirs except when the estate (or trust) itself generates income or gain that is passed through to the beneficiaries (who are then liable for any income tax due).
