If you have recently inherited an estate, cash, stocks, trusts, or other assets in the last year, you may have to file a return regarding your inheritance.
What is an Inheritance Tax and how is it taxed?
An inheritance tax is the tax on the assets you have received as a beneficiary, from the decedent (deceased).
The tax rate will depend on the type of property and assets you have inherited and the relationship between the beneficiary and the decedent. There are several deductions a beneficiary can claim to reduce the amount of tax owed. Inheritance tax is rated by the State you live in. Inheritance tax in many states is also called the estate tax.
What is an Estate Tax and how is it taxed?
An estate tax is tax on the total value of money and assets received as a beneficiary, from the decedent. The estate tax is pretty much exactly the same as inheritance tax just under a different name depending on where you live.
The tax rate depends on the overall value of your inheritance. The estate and any assests are appraised and assessed at fair market value.
However, there are some tax exceptions and some assets that are taxed on part or all of the value. This rule is called “ income in respect to the decedents”. This means that you may not have to pay all of the tax that is due. There are some deductions available that will help reduce the amount you may owe.
The most common examples of this type of inheritance are:
- Savings bonds
- Retirement plans, 401K
We suggest that you use an online tax preparation service such as TurboTax Online that will help calculate the amount you may owe on your inheritance or estate tax. Try one of their free calculators today!