Generally, inherited property (including cash, stocks, and real estate) is not taxable or reportable on a personal1040 federal return.
However, any income earned from an inheritance such as interest, dividends, rent) or capital gains will be taxable on a federal return.
An inheritance will be taxable if you inherit an IRA, 401(k) or other retirement account. That would be considered "income in respect of a decedent" which is earned by a deceased person prior to death. Because it was paid after death the income is taxable to the recipient in the year paid.
Generally, inherited property (including cash, stocks, and real estate) is not taxable or reportable on a personal1040 federal return.
However, any income earned from an inheritance such as interest, dividends, rent) or capital gains will be taxable on a federal return.
An inheritance will be taxable if you inherit an IRA, 401(k) or other retirement account. That would be considered "income in respect of a decedent" which is earned by a deceased person prior to death. Because it was paid after death the income is taxable to the recipient in the year paid.
To clarify TurboTaxVinceL's answer:
The simple act of inheriting an an IRA, 401(k) or other retirement account is not taxable, but any distribution out of those accounts would be.
So if I ever want access to the money that was in the decedent's ira I will have to pay 40% tax on it? Where does this $5.4 mm exclusion come into play?
So if I ever want access to the money that was in the decedent's ira I will have to pay 40% tax on it? Where does this $5.4 mm exclusion come into play?
The 40% rate is not an "income tax". It is a separate tax if the ASSETS of the Estate are over $5.4 million (including the Lifetime Gifts of the decedent). If the assets are below that, that tax does not apply. Only the regular tax on INCOME (such as withdrawing from a retirement account) applies.