Will I need to pay taxes on this inheritance?

September 26, 2011 8:05 AM

Will I need to pay taxes on this inheritance?

I think this is probably a fairly straightforward question, but my Googling yielded inconsistent results. I inherited a small amount of money (a couple thousand dollars) from my grandmother and am just curious about whether I should plan on paying taxes on it. I'm a resident of New York and my grandmother was a resident of Massachusetts, if it matters.

posted by miskatonic to work & money (8 answers total)

It depends, in part, on the size of your grandmother's estate. Who is the executor of your grandmother's estate? That person should have told you what tax consequences, if any, there are to your grandmother's estate, or put you in touch with the person who has looked at your grandmother's estate.

Failing all of that, this question is best answered by a qualified CPA or tax attorney.
posted by dfriedman at 8:24 AM on September 26, 2011

My aunt is the executor of the estate. How large would the estate need to be before I'd need to pay taxes, or is that not an easily answerable question?
posted by miskatonic at 8:27 AM on September 26, 2011

There is not enough information here to successfully answer your question. It entirely depends on your tax status and the details of the estate distributions.
posted by odinsdream at 8:27 AM on September 26, 2011

*technically* the estate pays the taxes.

Are you asking where/whether you need to report the cash you received on your fed/state taxes ?

The IRS says you don't pay fed taxes on an inheritance.

Further, the IRS also states (page 27) that on your 1040 (line 21, the "other income" catch-all) lists "Gifts and bequests" as part of non-taxable income. (bequest = inheritance).

For your state, look at your dept of revenue.
posted by k5.user at 8:43 AM on September 26, 2011

It's not quite as simple as saying inheritances aren't taxed. For example, the tax situation is different if the money comes to you as an inherited IRA.

I was in a similar situation a few years ago, and we solved it by going to a good accountant with experience in this kind of situation. I highly recommend it.
posted by pie ninja at 8:46 AM on September 26, 2011

IAL. IA Estate L. The other answers above are correct.

The receipt of ownership of a thing on occasion of the death of another (will, trust distribution, intestate succession) is not a taxable event. So - the boat Grandpa left you, the house Aunt May willed to you, the cash bequest from Grandma are non-taxable events.

BUT if you succeed into ownership of a tax affected account as mentioned above (IRA, Roth IRA, etc.) There can be tax consequences at the Federal level if you immediately liquidate the account.

For the States I am licensed the above would be correct at the State level but check your State's revenue code to be sure.
posted by BrooksCooper at 8:56 AM on September 26, 2011 [1 favorite]

I'm sorry for your loss.

As noted, there are exceptions, but in all likelihood the answer is no.

- Neither Mass nor NY have a state inheritance tax, and there is no federal inheritance tax.

- Estates of less than $5 million (in 2011) are generally exempt from federal estate taxes, and for Mass state taxes the exemption amount is $1 million. (And as noted above, estate taxes are paid by the estate, not the beneficiary, so your aunt would have to deal with that side.)
posted by Mr.Know-it-some at 9:13 AM on September 26, 2011

Thanks for the info, folks.
posted by miskatonic at 9:46 AM on September 26, 2011