UPDATED: 2019 for Tax Year 2018
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
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.
Sale of Inherited Property & Income Received from Ownership of Inherited Property:
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 House that is Inherited:
If you sell a house previously used as the personal residence of the decedent, and if you or a related party has not subsquent to that death occupied the house, then the following applies:
- 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
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.
State Inheritance Tax, and Federal or State Estate Tax, are not a part of the Income Tax system.
TurboTax only supports Income Tax filings.
Inheritance Taxes and Estate Taxes are not allowable deductions, in general, on Income Tax filing
The ONLY STATES with INHERITANCE TAX on bequests to beneficiaries are:
All six states exempt spouses, and depending on state, exemption varies for immediate relatives.
Received inheritance from mother who passed away on 09/06/2019 and received the money on 10/21/2019. Have just received a 1099-int from mother's brokerage account showing $264.85 in box 1. This seems awful high for just 6 or so weeks. Do I need to report this?
You'll need to find out the amount of interest that was earned from 09-06-2019 and 10-21-2019.
You will need to claim that interest. The remaining interest earned would be reported on your mother's final return or 1041.
Inherited an annunity from an insurace company received 1099-R taxable portion reported on Federal - but state did not minus it from income. Is this correct? Annunity is taxable for the State of Illinois?
This would be taxable both at the Federal and State level. This will be included in State income as well.
My German Aunt died and left me and 7 others in Germany and here in States, a small inheritance of $ in her verified German accounts. Per info request letter from German Finance Office I already had to prepay German Inheritance tax in Jan. 2019. No closure yet of this problem, no $ yet received to date. Is the 2019 prepaid tax and any other costs to finalize this event deductible on my 2019 tax, and possibly in 2020?
@ingehof You can file form 1116 for the foreign tax paid. See Where do I enter the foreign tax credit (Form 1116) or deduction for 2019?
Most (about 95%) people do better taking the credit as of 2018 with the tax law changes.
I believe I have a similar situation. My mom passed on 9/7/20. I withdrew monies from that inheritance in Oct.. Is there a form on Turbotax where I can add a "Date of Death Basis" for the taxes it's asking me to pay? I currently have Turbotax Premier. It didn't ask me for a date of death.