My wife will be receiving an inheritance from her Uncle's estate. What are the federal tax implications?

  • 1
    While this question is about Federal tax implications for the beneficiary for which the answer is that no tax is due from the beneficiary on the inheritance regardless of the size of the inheritance (estate taxes, if any, (both Federal and State) are paid by the estate, not the beneficiaries), some States tax inheritances as described in this recent article. Many don't tax immediate family members (spouses, children etc), but all 6 states mentioned do tax nieces. May 18 '13 at 22:33

It depends on how big the inheritance was. According to the IRS you are in the clear unless the total assets she inherits exceed $1 Million.

Edit - In 2013, the amount one can leave and have no federal estate tax issue is $5.25M. It's the deceased's estate that pays the tax, not the beneficiary. So even if this were above the number, it's received post-tax. The article linked above is current.

  • So the good news is no taxes, the bad news is that it will be much less than $1M. =)
    – JohnFx
    Aug 4 '10 at 20:21
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    The $1M cap is for the estate. If 4 siblings each inherit $300K, the estate would owe estate tax because it is over the IRS cap.
    – Alex B
    Aug 5 '10 at 14:38
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    @Alex B - True, but in any event isn't the executor responsible for paying out those taxes from the estate rather than the person receiving the inheritance?
    – JohnFx
    Aug 5 '10 at 15:35
  • Indeed, John, beneficiaries should see no tax bill at all, the estate pays any tax due. But. For retirement accounts with pretax money, withdrawals are subject to income tax. Nov 26 '12 at 0:55
  • @JoeTaxpayer Since you edited JohnFx's answer very recently, you might be interested in my comment on the main question in which I point out that some states tax inheritances quite separately from any estate taxes. And yes, this has nothing to do with the question itself which is about Federal taxation, not State taxation, of inheritances. Jun 5 '13 at 13:05

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