Q:

Subject: Penna Question

When as a recipient of a gift from the death of a friend, do we as the recipient pay tax on it?

Also is this added into our income?  (State or Federal or Local)

http://www.taxguru.org/estate/706.htm

I have read your site, but it talks to more of the donor than the receiver.

Thanks

A:

You first need to be clear about your terminology.  A gift is something you receive from another person while s/he is alive.  An inheritance is something received after the person passes away.

There are very few things that are not subject to income tax on the recipient.  Gifts and most kinds of inheritances are two of them.  The only potential tax, if the gifts or bequests are large enough, are on the former owner of the item being transferred.

The most common kind of inheritance that would cause income tax obligations for you as the recipient would be of something like a pre-tax retirement account.  If you were named beneficiary of someone's IRA or other kind of tax deferred account, you will probably have to pick that up as taxable income.  In that case, you should definitely work with a professional tax advisor to see what can be done to limit your tax hit.

If what you received wasn't from a retirement account, there should be no income or other tax for you to worry about.  You are not even required to report it on your income tax returns.  However, I often do disclose large gifts and inheritances on a statement with tax returns where it would explain why certain deductions, such as charitable donations, are much larger than would normally be expected for someone with a certain sized taxable income.

I hope this helps.  A tax pro can help work with your particular situation.


Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/18/2005 10:58:00 PM Send this post: