How do I minimize the taxes on money I'm inheriting?
February 8, 2010 5:23 PM   Subscribe

Suppose I were soon to receive a check for approximately $20,000. Also suppose that this represents a portion of my share of an inheritance from a relative and that additional monies will be forthcoming and, though I don't know exactly how much, that'll probably be on the order of $50,000 or so. What are the tax implications of this for me? What could I do to minimize the taxes I pay on this money? (I'm in the U.S.) YANAAccountant or MAccountant.
posted by Wisco72 to Work & Money (11 answers total)
IANYA, but taxes on inheritance in the U. S. are not paid by the beneficiary. They are paid by the estate. You should ask your accountant, but I think your tax burden is zero.
posted by Old Geezer at 5:26 PM on February 8, 2010

The estate tax is 0% for 2010.
posted by Justinian at 5:29 PM on February 8, 2010 [1 favorite]

It depends on where the money is coming from--for example, there can be tax liabilities involved in being the beneficiary on a tax-deferred retirement account. However, in most cases, the heir doesn't have to pay taxes on the inheritance; any taxes due are paid by the estate before the heirs receive their money. The executor many be able to inform you of your tax liability, if any.
posted by phoenixy at 5:30 PM on February 8, 2010

Of course you said "suppose...", so I have no idea if you are fudging the details. Since taxes are all about the details, well, that would be problematic.
posted by Justinian at 5:32 PM on February 8, 2010

It's enough money that it's worth finding a lawyer to avoid messing it up, IMO.
posted by pril at 5:37 PM on February 8, 2010

Best answer: Estates are exempt from US federal taxes this year (2010). There is pending legislation to reinstate the estate tax on estates larger that $5 million, however. There may be inheritance taxes in your state.

In general, federal tax issues for inheritances are handled by the manager of the estate, not by the recipients of the inheritance. An inheritance is not considered income for federal income tax purposes. Again, it may be considered income for state income tax purposes, depending on the state.

There are additional considerations if the inheritance is from a tax-deferred or tax-exempt retirement account.
posted by mr_roboto at 5:38 PM on February 8, 2010

Best answer: The estate tax is 0% for 2010.

Yup, you could inherit a billion dollars and not pay a dime. In 2011 they reset to their 2000 levels of a $675k exemption and 55% after that, because the law that removed the estate tax was passed via reconciliation.

here's info on the actual exemtion rates.

According to wikipedia the states with inheritance tax are IA, IN, KY, MD, NE, NJ, OK, PA and TN.
posted by delmoi at 5:52 PM on February 8, 2010

I'm not sure I have the details right, but I believe I had to pay taxes on money earned by my share of the inheritance before it came into my possession. Given today's interest rates, it is likely to be small percentage of the total but it was annoying since I didn't find out about it until after I had filed my taxes for that year.
posted by metahawk at 7:15 PM on February 8, 2010

There is talk that the estate tax, when it is reinstated, might be retroactive through this year, but it looks like you will be well under the proposed federal minimum.
posted by tresbizzare at 7:24 PM on February 8, 2010

Best answer: IAL.

1) If this is a US probate which is issuing the inheritance then receipt of the money by the beneficiary (you) is not a taxable event.

2) If this is a US probate issuing the inheritance to a non-US citizen who does not reside in the US then consultant a tax professional / shamanic healer in your country, state, province, village

3) All discussion of estate tax is irrelevant to your question. Any estate taxes owing are paid by the estate prior to distribution. So if you are getting $x dollars from the estate that's net after any necessary taxes have been paid.

Free money. Not a bad thing.
posted by BrooksCooper at 8:39 PM on February 8, 2010 [1 favorite]

Well, I'm no lawyer, but I'm definitely under the impression that you can end up paying taxes on some forms of inheritance, loosely construed. For instance, if the check you are receiving is a lump sum distribution out of a 401k account. I had this happen this year and 10% of the distribution was withheld for state and federal taxes.

(I must admit that I'd be happy to be wrong on this one.)
posted by col_pogo at 1:36 AM on February 9, 2010

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