In 2022 received an inheritance from someone who lived in NYC and passed away in NYC. I also live in NYC.

[Catmom5]

I live in NYC and in 2022 received a large inheritance from someone who also lived in NYC and passed away in NYC.  How will this affect my tax reporting in April 2023?

[VincentL2]

While New York doesn't charge an inheritance tax, it does include an estate tax in its laws. The state has set a $6.11 million estate tax exemption, meaning if the decedent's estate exceeds that amount, the estate is required to file a New York estate tax return. The estate tax rate in New York ranges from 3.06% to 16%.

[LarryL20]

Estate taxes are typically paid by the estate prior to distribution to the beneficiaries.  From IRS Publication 525, in most cases, property you receive as a gift, bequest, or inheritance isn't included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.  Similarly, for New York State, the amounts received are considered gifts (since NY does not have an inheritance tax) and are not includable in your income.  Therefore, this inheritance will have no impact on your individual 1040 and NY-IT201 tax filings in April 2023.

[mikafeed58]

First of all, Inheritances are not considered income for Federal Tax Purposes. However, any subsequent earnings on the inherited asses are taxable unless it is derived from a tax-free source. As for New York State, it also does not charge an inheritance tax, but it does include an estate tax in its laws...meaning the decedent may be required to file an Estate Tax Return. 

Please visit the NY State link below for further information:

Estate tax - Tax.NY.gov

https://www.tax.ny.gov › pit › estate › etidx

[MariaDG1 · Accepted solution]

Hi Catmom5! Thanks for participating in our event today.  This is a fantastic question.  This situation can be stressful and confusing for so many people.

As others have mentioned, there is no federal inheritance tax, as inheritance is not considered taxable income for federal tax purposes.  Additionally, only 6 states currently have an inheritance tax and  NY is not one of them.   So you are safe from inheritance taxes in this scenario.  As far as estate tax, that wouldn't be your responsibility. The difference between estate and inheritance tax, is that the estate tax would be paid by the estate prior to assets being distributed to beneficiaries, while an inheritance tax is paid by the recipient of the inheritance bequest.

However, while there is no direct inheritance tax, there may still be tax implications depending on what you inherited. Are the assets in a trust?  Did you receive cash?  If so, will it be earning interest in a savings or investment account?  That interest would be taxable.  Did you inherit only cash, or did you also receive stocks, bonds, or mutual funds? If so, you need to consider if and when you will sell them, as any gains would be taxable.  Sometimes an inheritance can include retirement accounts.  Those have specific rules that may require you to take the funds out and pay taxes on them.  

Here is an article that gives a good start to understanding the implications of your inheritance. TurboTax Inheritance  If you aren't sure you understand your situation, you may also consider consulting a cpa, financial planner, or estate attorney. 

[Catmom5]

Yes, it is stressful and confusing.  I thank you for your clear and full explanation, and breaking it down for me, so that I am able to understand what to expect when I file my taxes in April of 2023.