Is an inheritance distribution typically taxable?

[dto1984]

My mother received three distributions and three 1099r's as a result of her mother passing. These apparently are counted taxable income, which pushes her into the income bracket that forces her to repay several thousand dollars of Obamacare premiums even though her actual earnings, which the premiums were based off of, did not change. She is understandably frustrated by this. Is there anything that can be done to help the situation?

[JulieR · Accepted solution]

Yes, this type of distribution is usually taxable.  Unfortunately, if these retirement distributions increased her income to an amount greater than the amount the Marketplace used to compute her advance premium tax credit, she will need to pay part of the credit back.

The following TurboTax FAQ provides some explanation about the taxability of inherited retirement plans. https://ttlc.intuit.com/replies/4790205

[ScruffyCurmudgeon]

This is an answer responsive to a question re: a §401(k) pension account which is inherited.  The OP did not indicate what form of pension this was for which the Form 1099-Rs were received.

[ScruffyCurmudgeon]

UPDATED: 2019 for Tax Year 2018

 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

=========================

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 pension account from which taxable distributions are required because of the nature of your inheriting the account.
• 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.  
  

 N.B. Some states tax distributions from an IRA or a pension distribution, and some only tax the income generated within the IRA or pension 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.