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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.
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.
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!)
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.