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Is My Inheritance Taxable?
In most cases, an inheritance is not subject to income taxes. This includes the value of accounts, stocks, bonds and property received because of death of the owner, as well as proceeds of life insurance policies. There are several exceptions:
- Income earned by assets of the estate AFTER the date of death are generally taxed to the estate, or, if distributed, to the beneficiary. This would include interest on bank deposits, dividends on stock, rent collected from rental properties, etc.
- If you inherit a pension or Individual Retirement Account from the deceased, the payments are generally taxable to you when withdrawn in the same manner in which they would have been taxed to the deceased if withdrawn during his lifetime. Unless you are the deceased's spouse, you cannot rollover these funds to an IRA in your own name. However, you may have some options as to how quickly to withdraw the money, and this should be discussed with a tax professional or attorney familiar with the estate.
- If you sell property that you inherit, you may have a gain or loss to recognize. For more details see the FAQ "I Sold Something I Inherited".
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