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My son received $17K from his aunt who died in 2007. He was

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My son received $17K from...
My son received $17K from his aunt who died in 2007. He was the listed beneficiary on the account. The form he received from Lincoln had it listed as taxable income. Is that true? Should he have claimed it as ordinary income? It was my understanding that inheritance was not taxable unless it was over a certain amount.
Submitted: 8 years ago.Category: Tax
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4/1/2009
Tax Professional: Lev, Tax Advisor replied 8 years ago
Lev
Lev, Tax Advisor
Category: Tax
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What type of form did your son received? Was it the form 1099-R or any other?

What type of account did he inherited? Was that a tax deferred account - 401k, IRA, etc?

 

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Customer reply replied 8 years ago
I think it was an annuity account but I am not sure. I will have to gather the information from him tomorrow as to the type and the exact form he received. Can I contact you tomorrow?
Tax Professional: Lev, Tax Advisor replied 8 years ago

Absolutely - you may come back at the later time.

I suspect that was tax deferred account.

While you are correct that inheritance is not taxable income in the US - and do not need to be reported to the IRS - there is no any amount limit. Please see for reference IRS publication 525 page 33 - http://www.irs.gov/pub/irs-pdf/p525.pdf

 

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The distribution from tax deferred account should be included into taxable income.

My wild guess that he received the form 1099-R - http://www.irs.gov/pub/irs-pdf/f1099r.pdf and that form reports taxable amount in the box 2a; In the box 7 the distribution code should be "4" - Deaths - so that distribution is not subject of 10% penalty.

Please verify if that is correct and let me know if you need any help with reporting.

 

Lev
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Customer reply replied 8 years ago
Thank you - I will get back with you tomorrow after I have more information.
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