Author Topic: Minimizing taxes I have to pay from getting an inheritance  (Read 3629 times)

trustmrtwo

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My grandparents recently passed away and my wife and I will be getting some inheritance ($50k) from them.

Is there anything we can do to minimize the taxes we'll have to pay?

We are considering buying a house soon, not sure if that would help at all.

Just looking for some advice on what could possibly be done to minimize the taxes we'll most likely have to pay on this inheritance.

Thanks!

Another Reader

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #1 on: May 03, 2017, 03:34:45 PM »
Any estate or inheritance tax would have been paid by the estate administrator before the funds are distributed.  Inheritances are not subject to income tax.

Spork

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #2 on: May 03, 2017, 03:53:19 PM »
Any estate or inheritance tax would have been paid by the estate administrator before the funds are distributed.  Inheritances are not subject to income tax.

Mostly, yes.  But:
* some things (Annuities, for example... or some insurance policies structured like annuities) have dedicated beneficiaries and MAY BE taxable
* Income taxes paid by the estate on the last year are often passed through to the beneficiaries via a K-1.  It can be more tax efficient this way.  In other words, instead of one person (the deceased) in the 33% bracket paying tax on $200k, you might split this 5 ways and effectively have 5 people in the 25% bracket paying tax on $40k.

Not a CPA... so be skeptical of what I say... I've just been on the taxed end of this.

Mostly, things in non-Rockefeller type estates are not taxable.  But there are investment vehicles out there that cash out on death that may be taxable.  Just sayin'.

trustmrtwo

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #3 on: May 03, 2017, 04:01:40 PM »
Any estate or inheritance tax would have been paid by the estate administrator before the funds are distributed.  Inheritances are not subject to income tax.

Did not know that, thank you.

Hopefully it's pretty straight forward and not more convoluted like Spork mentioned =]

wenchsenior

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #4 on: May 03, 2017, 04:32:38 PM »
Any estate or inheritance tax would have been paid by the estate administrator before the funds are distributed.  Inheritances are not subject to income tax.

Mostly, yes.  But:
* some things (Annuities, for example... or some insurance policies structured like annuities) have dedicated beneficiaries and MAY BE taxable
* Income taxes paid by the estate on the last year are often passed through to the beneficiaries via a K-1.  It can be more tax efficient this way.  In other words, instead of one person (the deceased) in the 33% bracket paying tax on $200k, you might split this 5 ways and effectively have 5 people in the 25% bracket paying tax on $40k.

Not a CPA... so be skeptical of what I say... I've just been on the taxed end of this.

Mostly, things in non-Rockefeller type estates are not taxable.  But there are investment vehicles out there that cash out on death that may be taxable.  Just sayin'.

This sounds pretty accurate to my memory of dealing with a smallish inheritance that my mother received. It was mostly non taxable, but the annuity portion did generate a K1 form and my mother did have to file taxes that year and pay on that portion.
 

MishMash

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #5 on: May 03, 2017, 05:51:46 PM »
Any estate or inheritance tax would have been paid by the estate administrator before the funds are distributed.  Inheritances are not subject to income tax.

Did not know that, thank you.

Hopefully it's pretty straight forward and not more convoluted like Spork mentioned =]

It's not that straight forward, from the one that just got a SURPRISE! here's your K1 and associated large tax bill.  As long as the estate is under 10 million there is no estate or inheritance tax.  However, if those assets are in stocks or property that were sold prior to distribution you will be taxed on the capital gains, but will receive a bumped up cost basis depending on the date of death.

MustacheAndaHalf

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #6 on: May 04, 2017, 05:18:43 PM »
As long as the estate is under 10 million there is no estate or inheritance tax.
That's not the case according to the IRS:

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes
"The filing threshold for 2017 is $5,490,000,"

CareCPA

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #7 on: May 04, 2017, 05:28:23 PM »
As long as the estate is under 10 million there is no estate or inheritance tax.
That's not the case according to the IRS:

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes
"The filing threshold for 2017 is $5,490,000,"
Per person. OP states grandparents, so the assumption was probably made that both passed in the same year.

seattlecyclone

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #8 on: May 04, 2017, 06:16:26 PM »
A few states do have an inheritance tax that you would have to pay based on what you receive. For the purpose of the federal estate tax whatever you get is yours; the estate should have paid any federal tax before distributing assets.

Reynold

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #9 on: May 12, 2017, 12:23:13 PM »
A few states do have an inheritance tax that you would have to pay based on what you receive.

I happen to know that New Jersey is one of those, and the exclusion depends on your relationship with the decedent; it is only about $500 for someone unrelated, up to 100% for a spouse.  Maryland is the other, I don't know as much about their system. 

Otherwise, as others have said the only tax which might be due is likely to be from change in the asset value between date of death and when you get it. 

bb11

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Re: Minimizing taxes I have to pay from getting an inheritance
« Reply #10 on: May 19, 2017, 07:38:36 PM »
As long as the estate is under 10 million there is no estate or inheritance tax.
That's not the case according to the IRS:

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes
"The filing threshold for 2017 is $5,490,000,"

If you're married then the surviving spouse can use their former partners number too, so total is $10.8 million in most cases that can be inherited tax-free. You certainly shouldn't be paying any taxes on a $50k inheritance in the US.