We had an inheritance of roghly $300K in 2016, does this need to be filed on our taxes as it is under the threshold?

[Carl]

For the most part, an inheritance is not taxable or reportable on any tax return. There are exceptions (such as an inherited 401(k) from which you took a distribution). But for any exceptions you would have received some kind of tax reporting document by now, such as a 1099-R.

[scottinphx]

Also received 1041. What makes this a taxable event?

[VolvoGirl]

You got a 1041 Schedule K-1?  You have to enter that into your return.

To enter a K-1 go to
Federal Taxes Tab
Wages and Income
Then scroll way down to Business Items
Schedules K-1, Q - Click the Start or Update button

Be sure to pick the right kind of K-1. There are 3 kinds, 1041, 1065 & 1120S

[scottinphx]

Thanks but what makes this a taxable event it's under the $5mm exemption threshold

[VolvoGirl]

That is for the estate tax return for the deceased.  Not the beneficiary return.

[scottinphx]

Based on info on k-1 form 1041 for the beneficiary turbo tax shows I owe roughly $70k in tax on income of $200k.  Again, what about the $5mm federal exemption threshold?  What is making this taxable?

[scottinphx]

Does anyone have any ideas where I would go to get this question answered?

[SweetieJean]

See answer below.

[rjs]

@jensen.steve40 - It's not clear whether you have an inheritance, which would not be taxable to you, or IRD, as described by SweetieJean below, which would be taxable to you. Your situation may be different from that of the person who posted the original question.

On the Schedule K-1 (Form 1041) that you received, what box is the income in? If there is a code in the small box to the left of the amount, what is the code?

[scottinphx]

There are several boxes with figures, but the large dollar amounts are Box 5, no letter code, and box 14, letter code H, for the same dollar amount except it is preceded with a minus sign.  Thank you

[rjs]

Box 5 is taxable income from the estate, not a straight inheritance. But it's a catch-all for income that didn't fit into any of the other boxes. You will have to ask the executor of the estate, or the tax person who prepared the estate income tax return, what the income is from and why it's taxable.

The negative amount with code H in box 14 is an adjustment that excludes the income from the estate from the additional 3.8% Net Investment Income Tax. But the income is still subject to regular income tax.

I will ask a couple of other SuperUsers if they can give you any better explanation, but I think you are going to have to ask the executor, as I said.

[TaxGuyBill]

@scottinphx   The $5 million Estate exemption is for the special tax on the ASSETS of the Estate.  For example, let's say a person earned a bunch of money, and after paying regular income taxes, had $6 million in the bank.  If that person dies, the amount over $5+ million is subject to a special "Estate" tax.  It is an additional tax on the total value of the assets.

A Form 1041 is for INCOME tax on an Estate.  In other words, the Estate earned money (which has not ever been taxed) and it needs to pay regular income tax on that money.  Common examples is if the deceased received income after their death (IRD), or after the person died, assets were sold at a profit.  That "income" needs to be taxed.  That has nothing to do with the "Estate" tax on the assets (and therefore the $5+ million exemption).

Your K-1 is passing that "income" on to you, so you pay the income taxes on income that has never been taxed.

Does that make sense?

[scottinphx]

es it does make sense.  However, I have no idea if these funds have been taxed already, or if the estate has paid taxes in association with the filing of the K-1.  I guess the custom is to assume no taxes were paid.  So is it true that I would owe federal tax, Arizona tax, and New Jersey tax (being the state in which she passed away).

[TaxGuyBill]

If you received the income distributions, the tax is generally paid by you.  If you are unsure about that, you can ask the person who prepared the Estate 1041 form.

Yes, you owe Federal and State taxes.  State rules vary, but your home State generally gives you a "credit" for taxes you paid to another State, therefore avoiding double-taxation.