Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments, or property. However, any subsequent gain from inherited assets is taxable, unless it comes from a tax-free source. You'll need to include interest income on inherited cash and dividends from inherited shares or mutual funds in your reported income, for example. Other immediate family members, such as the deceased's parents, children, and siblings, are exempt to varying degrees, depending on the state.
Inheritances may be taxable, especially if passed on to you by someone who is not an immediate family member. The rental house generates enough cash to pay the farm's real estate taxes, and he has a reverse mortgage on his D. In most cases, the assets you inherit will have an increased base, meaning your capital gains tax would be calculated using the value of the asset when you received it instead of the value of the asset when it was first purchased. Not all Americans are charged an inheritance or inheritance tax, and many states have completely moved away from these liens.
If you expect an inheritance from your parents or other family members, suggest that they create a trust to manage your assets. The tax usually applies whether you receive money, investments, real estate, or anything else of value. With an irrevocable trust, there is no official transfer of property upon death, meaning there is no estate or inheritance tax. Whether your estate is taxable, and at what rate, depends on its value, your relationship to the person who died, and the rules prevailing where you live.
An inheritance tax is a state levy that Americans pay when they inherit an asset from someone who has died. See What's New: Inheritance and Gift Tax for updates on final rules being enacted to implement the new law. Surviving spouses are exempt and tax rates are higher the less related you are to the deceased. However, not all assets will receive an increase basis, so it is important to understand the value of your assets for tax purposes.
Nebraska has the highest inheritance tax rate of 18 percent levied on non-family heirs. Only estates or properties located in one of the six states that impose inheritance taxes may be subject to them. To determine how much you owe at the federal level, you'll want to calculate how much of your estate is taxable by subtracting the gross value of the estate with any debts and expenses that are also passed on to eligible beneficiaries.
