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Can you please tell me what state you live in and what state the person who left you this inheritance lived in?
There is no inheritance tax at the federal level. Instead, the IRS imposes estate taxes which are only paid by estates which exceed a certain value. For decedents who died in the year 2009, that value was set at $3.5 million. Estates below that value owe no estate taxes.
There are a few states that still impose an inheritance tax, but IL is not one of them. IL does also have its own estate tax, but the exemption amount is the same as the IRS, which is $3.5 million.
If your parent's estate exceeded those values, then the estate itself would pay estate taxes out of the estate assets. The balance of the assets then pass to you or to any other beneficiaries without further taxes being due.
That being the case, you would not be required to report any of your inheritance on your tax return with one exception. If the money you received was held inside of an IRA account or other similar tax deferred retirement account such as a 401k plan, then normal income taxes are due on those funds when they are withdrawn from the account. You would receive a 1099-R form from the investment company at the end of the year to show the amount you withdrew, and you would include that as taxable income on your return.
But money that is from a regular bank account such as a savings acct, checking acct, CD, etc. does not need to be reported and is not taxable and does not need to be reported.
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Hello again golden,
Yes, it will need to be reported on both your federal and state tax returns. Withdrawals that you receive from an IRA account are treated the same as ordinary income that you would have from a job or other sources.
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