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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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My brother and I inherited 60,000 each and also inherited a

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My brother and I inherited 60,000 each and also inherited a home worth 140,000 in Maine becuase our younger brother died and funds were released from an irrevocable trust. One of us lives in Washington, DC and one of us lives in Chicago, IL. Do we have state and federal tax liability on these items?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Robin D :

Hello and thank you for using Just Answer,
Please accept my condolences on the passing of your brother.
If the money you inherited was not in an account that would have been taxable to your brother (IRA, annuity, 401K) and you inherited the account first an dthen receive a distribution, the cash is not taxable to you. When you inherit an account you are taxed just ike the deceased would be taxed on the money from the account.
The home will depend on what you do with it now that you are the owners. If you sale the home you will pay capital gains tax on any gain. Your gain would be determined by the difference in basis and sales price. Your basis will be the fair market value on your brother's date of death. If you sale for the same amount, you would each need to report your portion of the sale but may not see a gain and if you have a loss you would be allowed to use the loss against other income on your return.
If you use the home for rental property you and your brother would need to report the rental on your tax returns using the portion for income and expenses that are relative to your ownership (50% each or whatever percentage it is split).
Your individual states will tax you same as federal on the items I mentioned above.


There is no inheritance tax in Maine. Maine has partially decoupled from the federal estate tax law. The amount exempt from the Maine estate tax is different from the amount exempt from federal estate tax. A decedent would have their estate exempt for up to $1,000,000.

Robin D :

Please let me knowif you have more question but thank you in advance for a positive rating.


 

Customer:

Dear Robin D,


 

Customer:

Thanks for the info on Maine, as we will be exempt and don't plan to sell the house.


 

Customer:

How about Federal Tax obligations?


 

Customer:

Does it matter that we don't live in Maine?


 

Robin D :

As I advised, you will not owe federal tax on inheriting the house even if you do not live in Maine

Robin D :

If you saw the info I posted about the $60,000 then you can see it depends on how you actually received the money

Robin D :

If it was just cash to you then no, if you actually received an account that was then distributed you will be taxed just like your brother would have been taxed.

Robin D :

What was the cash actually disbursed from

Customer:

The cash came out of an irrevocable trust at TD Bank that was dissolved upon my younger brothers death, and 60,000 was deposited in cash to me and to my brother. A deed for 50/50 ownership of the house was later sent. The terms of the dissolution of the account was that my little brother would pass away. The TD Bank handled the account and was not clear in their instructions to us as to how to handle the distributions of cash. I'm not really worried about the house right now, but want to do the right thing comes tax time in April 2013. Will there be a spot on IRS forms to exempt these cash deposits from our tax liability? thanks for your help !!!


 

Customer:

Robin D: Thanks for spending this time for me. I'm still here.


 

Robin D :

As a trust is a passthrough entity (income and losses pass through to the beneficiaries) you will receive a K1 form aon the distributions. If the income is accumulated in the trust or estate, that entity pays the tax. If the income is distributed to the beneficiary or beneficiaries, the trust or estate is given a deduction for the amount of the distribution. That amount passes out to the beneficiary on the Schedule K-1 and the recipient, whether it be an individual, another trust, a partnership, etc., incorporates this amount on its tax return.
Your income portion will be shown on the K1 but you nor I will be able to estimate what (if any) that amount will be.


Will there be a spot on IRS forms to exempt these cash deposits from our tax liability?


Possibly, as I said the K1 will pass income and losses to the beneficiary unless the trust absorbed those and then made distributions.


With the info you have now you may want to contact the TD Bank and ask about the distribution. If you do not feel comfortable with that you can speak with your personal tax professional and ask them to contact and find out exactly what is being done with the trust filing.

Robin D :

Again your tax liabiltiy (if any) will be determined on what the money came from and if the trust absorbed the income prior to distribution.

Customer:

Robin D: Thanks for your help here, can I pay you the $21 I had on deposit? Douglas

Robin D :

When you click on rating the site will compensate me for assisting you.

Customer:

OK then, bye and thanks !!!!

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7715
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
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15years with H & R Block. Divisional leader, Instructor