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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My brother and I inherited a promissory note when our father

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My brother and I inherited a promissory note when our father died. My Uncle wants to settle with us. The note was written for $25,000 in May 1975 @ 6% interest per annum.

He wants to settle by paying each of us $40,000.

Would there be taxes due on the $40,000? If so, how much?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

All income the decedent would have received had death not occurred that was not properly includible on the final return, is income in respect of a decedent.

Income in respect of a decedent must be included in the income of one of the following:

  • The decedent's estate, if the estate receives it;

  • The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it; or

  • Any person to whom the estate properly distributes the right to receive it.

So far - most likely all income above the original amount of $25,000 - would be taxable income for you and should be reported as interest income.

So - your total taxable interest would be $80,000 - $25,000 = $55,000

 

Let me know if you need any help.

 

Customer: replied 5 years ago.
What would be the tax rate on the $55,000?
Expert:  Lev replied 5 years ago.

The tax rate would really depends on your other taxable income - as the tax liability is determined based on the total income.

Please provide your total income, filing status, dependents, deductions, etc - and I will estimate your tax liability.

Please also provide your state to determine if there would be an additional state income tax liability.

 

Customer: replied 5 years ago.

The settlement is between my brother and myself. $40,000 each. So would that be $40,000 - $12,500 = $27,500 - the $27,500 being the taxable amount?

 

We both live in Florida.

 

I file Head of Household - one dependent. Income approximately $52,000. Student loan interest is really my only deduction - about $3000.

 

My brother - files married jointly - one dependent. Income?? approximately: $60,000 between the two of them (I'm guessing!)

Expert:  Lev replied 5 years ago.

If both - you and your brother inherited a note in equal shares - each will be responsible for own share of income tax.

 

assuming you are HOH with one dependent and $52,000 gross income, standard deduction - your estimated tax liability would be $4,855

With additional $27,500 in interest income - your estimated tax liability would be $10,815.

So your additional tax liability are estimated as $5960.

Your taxable income $52,000 - $8,350(standard deduction) - $7,300 (personal exemptions) = 36,350 - that keeps you in 15% tax bracket (up to $45,500 in 2009)

So additional income pushes you into 25% tax bracket.

If you would receive the settlement partly in 2009 and partly in 2010 - you might have some tax saving.

 

For your brother - married filing jointly, with one dependent and $60,000 gross income, standard deduction - his estimated tax liability would be $4,813.

With additional $27,500 in interest income - his estimated tax liability would be $8,863.

So his additional tax liability are estimated as $4050.

 

Let me know if you need any help.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23237
Experience: Taxes, Immigration, Labor Relations
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