UPDATED: 2019 for Tax Year 2018
If you receive a GIFT do you owe tax? If you receive a BEQUEST/INHERITANCE do you owe tax?
Inherited Property in and of itself usually does not carry any income tax liability for the beneficairy (recipient) with the exceptions noted. In general, any assets, including cash, stocks, or the like, which you receive as an "Inheritance" [meaning from the Estate of a deceased person] are not in and of themselves taxable in the Federal or State Income Tax system because the assets are not received as "Income." However, any income generated by the inherited asset is taxable, appropriate to the type of income - see below
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Estate Tax - for the rare case where a Decedent (the deceased person) leaves an estate in excess of $5.6 (2018) million, there is the requirement for the Personal Representative (Executor) to file an Estate Tax Form 706 [not income tax] and pay any estate taxes due out of the assets of the estate before providing for inheritances to the beneficiaries. This is not Income Tax and is best handled by the Executor or attorney closing the estate.
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However, if the inherited asset does produce income after you inherit the asset, then that income, depending on the circumstances and type of investment which the asset represents, will be taxable. Examples:
- You inherit a bank account or bonds which produce interest income
- You inherit stocks which produce dividend income.
- You inherit stocks or other investments which you subsequently sell, and as a result produce either a capital gain or a capital loss - both of which are reported for tax purposes.
- You inherit a house - which is not your personal residence and so is treated as an invesetment asset.
If you inherit any form of investment property, that inherited investment property if it produces any form of income in the form of interest or dividends, then the paid-out income is taxable and is reported on a Form 1099-DIV or 1099-INT, addressed to the recipient (presumably you!)
If you inherit a retirement account such as an IRA or pension or Annuity, the distributions from that deferred income account may be in whole or in part taxable and the taxable component is usually reported on Form 1099-R. You would need to spell out the form of the annuity [immediate, deferred, variable, etc.] for an answer to be given on what to expect might be taxable. N.B. Some states tax distributions from an IRA, and some only tax the income generated within the IRA but not the value of the contributions paid into the IRA. Good records are absolutely necessary to determine what is taxable at the state (not Federal) level.
If you sell inherited property, then you will pay a tax on capital gains based on the FMV of the property at the decedent's date of death, or report a capital loss [in either case, the term of ownership is defined as Long-Term], as reported on Form 1099-B or Form 1099-S if the asset was the decedent's house. Date of acquisiton will always be the date of the death of the person whose estate distributed to you the property. Sale of a decedent's personal residence, if not occupied by you is considered the sale of investment property and not the sale of a home.
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GIFTS:
- The recipient of a Gift has no Income Tax Liability for the value of the Gift.
- The Donor may have to review the rules regarding Gifts, if any one Gift from one person
to one other person is greater than $15,000 in one year. This is not income tax and
is the responsiblity of the Donor not the recipient. viz., IRS Form 709
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"Inheritance Tax":
There is no Federal inheritance tax. If the estate was greater than $5.6 million [less any Lifetime Gifts filed on Form 709], the Estate had to pay the estate tax then that would have been paid before any distribution of the inheritance to the beneficiaries, For Tax Year 2018, the estate and gift tax exemption is $5.6 million per individual; that means an individual can leave $5.6 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield $11.2 million from federal estate and gift taxes for deaths in 2018.
However, a few states do have inheritance taxes. Currently, a small handful of states and the District of Columbia collect an estate tax at the state level. Six states listed below collect an Inheritance Tax at the state level, and two of the states listed below collect both an estate tax and an inheritance tax. Your relationship to the deceased party from whom you inherited the asset very much determines whether or not you are liable for the Inheritance Tax and what rate of tax is assessed.
- Iowa
- Kentucky
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*Maryland
- Nebraska
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*New Jersey
- Pennsylvania
* State collects both estate and inheritance tax where noted
If this posted response is useful to you, please click on the upraised hand in the lower left of this post. Thank you. Scruffy Curmudgeon--PFFM/ IAFF, retired FireFighter/Paramedic - Locals 718/30, Veteran USAR O3 AIS/ASA '65-'67
NOT INTUIT EMPLOYEE
USAR 64-67 AIS/ASA MOS 9301 - O3
- Just donating my time
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