Hello, I have a question I hope I can get an answer to. My mother unfortunately passed away last year, and one of the things we had to deal with was a life insurance policy, worth about $28,000, that was split evenly between my two sisters and myself.
In preparing taxes this year (I had to file an extension), I received a Form 1099R from the Life Insurance company, stating that my gross distribution for this was $9,622.
My question is how do I put that into TurboTax? The Life Insurance company did not take out any Federal income tax withhold, since they couldn't know what my income tax bracket was going to be. When I just enter it directly as a 1099R, TurboTax thinks that I've taken money directly out of a retirement fund, and changes my refund a significant amount. This doesn't seem right to me, as I was told that anything that my mother left to us (up to a certain dollar amount, which we didn't even come close to), was considered an inheritance, which isn't taxed. I would think a Life Insurance fund would fall under that, as well, but again it seems that when I enter it, my refund shrinks to almost nothing.
Any help would be appreciated!
where do I file life insurance from inheritance from deceased parent
Not on your federal return. The IRS doesn't impose an inheritance tax.
Only a handful of states (Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania) have some kind of inheritance tax. Refer to your state's Department of Revenue to see what the requirements are for filing inheritance tax.
Interest or other income generated from inherited cash would be taxable. For example, if you inherited $10,000 in cash and deposited it into a bank account, generating $40 of interest this year, the $40 would be included in your income as taxable interest. @westyf
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@wolfman1 As stated above, most inherited funds are not taxable to the recipient. However, this does not apply to retirement accounts (Form 1099-R). The funds in those accounts already have received tax benefits and deductions, so when you (or your beneficiaries) withdrawal that money, the income is taxable.
I am sorry for both of your losses.