You actually have a couple of different issues here which need to be addressed or explained.
First, there is no inheritance
tax in the US
at the federal
level. The IRS
instead imposes an estate tax
on any estate which exceeds a certain value. In 2008 that level was $2 million. So assuming the father's estate was valued below that amount, and he passed way in 2008, then no federal estate taxes would be due.
of Ohio also has an estate tax on estates which exceed a certain value, and that value is currently set at $338,333. So again, if his estate was below that value, then no Ohio estate taxes are due.
You mentioned that you had a large tax bill of $6,000 when cashing in an IRA account. An IRA account is a tax deferred account, which means that regular income tax has never been paid on the assets
contained in that account. When a beneficiary
cashes in an IRA account, those assets immediately become subject to normal income tax, because they were never tax paid to begin with.
But all other assets such as a home or money contained in a regular savings account are all tax paid assets. And no further tax is due unless the entire estate exceeds the values mentioned above.
The home which your wife inherited is not subject to any inheritance tax. And when you inherit property
, you automatically receive a stepped up basis in the property, meaning the beneficiary's new basis the fair market value on the day she inherited it. Now even though no tax is due on the value of that property, if you now sell the property for more than your stepped up basis, you would be liable for capital gains
tax on any gain you had, if you sold the home for more than your inherited stepped up basis.
In your wife's case, she actually sold the home for less than what the market value was on the day she inherited the home, so she has no gain, and will owe no tax on the sale.
Now if she wants to split that money with her siblings, this can also be done without any tax implications.
Under current law
(this applies to all states, not just Ohio), each individual
may give lifetime gifts of up to $1 million before any gift tax
becomes due. Individuals may also give annual gifts of $13,000 to as many other individuals as they wish without those annual gifts even counting towards the $1 million limit. Gifts which exceed the allowed $13,000 exclusion must be reported, but there is no tax due unless that person has already used up his $1 million allowed lifetime exclusion.
You have indicated that the $82,000 is to be split 3 ways, so I assume that means that your wife plans to keep $27,333 and then give $27,333 to each of two siblings.
The annual exclusion allowed of $13,000 applies to each taxpayer. That means that both you and your wife can give $13,000 to each sibling, or a total of $26,000, without any reporting
requirements. You could also give another $13,000 to the sibling's spouse if they are married. There is no limitation
on the number of people that you can give $13,000 to in any one year.
And even if you choose just to have your wife give the entire $27,333 to one person, she will still owe no tax, as long as she has not used up her $1 million lifetime exemption. The only difference would be is that by exceeding the $13,000 limit to any one person, she is then required to report the gift by filing Form
709. And the gift that is reported then reduces her $1 millionn allowed exemption amount by the value of the gift given.
The botXXXXX XXXXXne is that you should not owe any taxes on the sale of this home or the splitting of the money, as long as your wife has not already exceeded her $1 million allowed lifetime exclusion on gifts.
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Thank you mark, and let me know if you have more questions.