Inheritance

[Aln9]

My mother left all her assets to mein a will before she passed. She asked that I give my sibling a certain amount of money. Is that taxed on either side of the transaction? Also, do I understand correctly that the only taxes I am responsible for are in the case of a home sale or IRA distribution?  TIA!!

[RyanH5]

If your mother's estate was under the estate tax exemption amount ($12.92 million for 2023), then there will be no estate tax implications on the assets that were distributed. 

If any of the assets, such as the house, were sold after her death, but before they were distributed, then her estate will need to file a 1041 tax return for estates and trusts, and K-1's will need to be issued to the beneficiaries. (This is not the same as the Form 706 Estate and Gift Tax return.)

Assets sold after they were distributed to the beneficiaries will be claimed on their personal returns. Basis in these assets will be stepped up to the fair market value at the date of her death.

IRA and pension distributions made directly to the beneficiaries will be taxable to them on at their normal rate. A 1099-R will get issued to them in these amounts.

[MartyG]

Hi Aln9,

First, I'm sorry for your loss.

Since your mom left everything to you, you are the owner of it, and it is yours, tax free, with a stepped up basis to the Fair Market Value of the assets on the day she died. (With the exception of the IRA distribution - but NOT the home sale).

1.  I'll answer your 2nd question first.  If you sell a home that you inherited from your mom, and you do not live  in it, you will recognize gain.  HOWEVER, that cost basis of the house is the Fair Market Value on the date of her death.  So if she died recently, then it is likely that the gain you recognize on the home sale would be small (only the appreciation from the date of death to the date you sell).  But you are correct on the IRA

2.  If you give your sibling money (assuming it was not in the will), it would be a gift from you to your sibling.  Depending on the amount, it would not necessarily be taxed (unless it is really really big), but might require you to file a gift tax return.  If neither of you are married, you can give your sibling up to $17, 000 without filing a gift tax return.  If one of you is married, you can create a joint gift (either from you and your spouse to your sibling, or from you to your sibling and and his/her spouse up to $34,000 without filing a gift tax return.  If both you and your sibling are married, you can do a joint gift up to $68,000 without filing a gift tax return.

I hope this helps.

Marty