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Inheritance/income tax question

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My deceased mother's house just sold for 76130.65 in TN. I have dispersed the money to all 4 heirs according to her last will and testament. Do we have to pay either inheritance or income tax on this money?

 If the money is less than $11,000 per person, you do not need to file.  If it is more than that, the taxes should have been handled by the state before the funds were disbursed.


Pub 559 can explain this process to you in detail.


Pub 559


Let me know if you still have questions.

Customer: replied 11 years ago.
Reply to Tammy Falkner's Post: this did not help me; thank you

 Let's see if I can be a little more clear. 


Usually, when a gift is given, inheritance included, the GIVER must file a gift return and the GIVER pays the taxes on the gift before it is given. 


In this case, your mother is no longer able to give the "gift" or to pay the taxes.  So - the estate should have taken the taxes out and paid the taxes before the funds were distributed.  Because they were not, someone has to pay the taxes and that leaves the receiver doing it.


If you each received less than $11,000 as part of your inheritance, you do not need to claim it as income.  If you received more than that, you will need to.


Does this clarify it?


 

Customer: replied 11 years ago.
Reply to Tammy Falkner's Post: I went to the probate court and found out that no inheritance tax needed to be filed since the estate was under 100,000.00. Another tax advisor told me that if the real estate or tax appraisal shows the sales price to be less than the appraisal that there would not be a taxable income. So I’m still a bit confused. Thank you.
 I just sent you a PM.  After you read it, please let me know if you still have questions.
Tammy F., Not an active Expert
Category: Tax
Satisfied Customers: 9168
Experience: Not an active Expert
Tammy F. and 2 other Tax Specialists are ready to help you

Assuming your mother passed away in 2004 or 2005 she is not required to file an estate tax return (Federal or TN) unless the value of her assets as of the date of death exceeds $1,500,000.  When an individual dies, their personal tax affairs are effectively cut off as of the date of death.  A final tax return for the year of death is to be filed by the executor of her estate reporting all items of taxable income and deductions up to her date of death.  For income received and deductible items paid post-date of death, these items are reported on her estates' income tax return (i.e. Form 1041) until the estate is closed via probate or all her assets are distributed (i.e. paid out or retitled into the beneficiaries name). 


Thus, if the home was sold while still in your Mother's name, then the transaction is reportable on the estate's income tax return.  The estate's cost basis in the home is its fair market value as of the date of death.  All assets of a decedent receive a step-up in their cost basis to their fair market value as of the date of death.  This is compared to the net selling price to determine whether there is gain or loss.  Accordingly, only appreciation subsequent to the date of death is taxable to the estate.  If the home was retitled into the beneficiaries names prior to sale pursuant to the will, then each beneficiary reports their share (i.e. one-fourth) of the transaction on their personal tax returns.  Their cost basis is the same as the estate's (i.e. the fair market value as of the date of death). 


No tax, income, gift or inheritance is due on receipt of the proceeds or retitling of the property.  However, if the property is subsequently sold at a gain over the FMV as of the date of death, then capital gains tax (subject to a maximum rate of 15%) will be due on the post-death appreciation.  Only if the value of the Mother's assets exceeds $1,500,000 will any estate tax be due.     

Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you for the free post. Your comment was helpful and greatly appreciated.
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you for the free post. Your comment was helpful and greatly appreciated.

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