Finding out you just inherited your great-grandmother’s lake house on Mackinac Island is great news until your brother tells you to brace yourself for the IRS to take its cut. Will you have to pay extra taxes as the new owner? What if you sell it? Is the money you get from the sale considered taxable income? We asked tax gurus about what kind of tax burdens you might come up against when you inherit an asset like a car or a home. Here’s what they had to say:
Imani Francies is a finance expert with the life insurance comparison site, EffortlessInsurance.com.
The Tax can Decrease Their Inheritance.
Those who are receiving an inheritance from the estate are not responsible for paying estate taxes. However, an inheritance that is passed on may be affected in size because of taxes.
The amount of tax that is implemented on an estate is dependent on both the size of the estate and the state where the deceased lived before passing away.
This impact of taxes on your estate is why a survivorship life insurance policy can be useful. If the policy is set up correctly, it can be excluded from the taxable estate which makes up for the loss in size of the estate because of taxes.
Manny Vetti is President and co-founder of Connecticut-based BackTaxesHelp.com
Be Careful of These Asset Taxes
Some asset inheritance tax problems you may experience are estate taxes and inheritance taxes. Estate taxes are the assets the deceased person leaves behind before distributing to beneficiaries. If someone is leaving an $11 million house, you may have to pay some hefty taxes. Luckily for most of us, we won’t have to worry about that.
Another tax you may have to worry about is an inheritance tax that the recipient receives after the assets are distributed. Unless you’re receiving more than $5 million, you don’t have to worry. If not, you don’t have much to worry about other than that.
George Birrell, CPA & Founder of TaxHub.
This depends on a number of things
In most cases, when you inherit an asset, you won’t need to pay tax on the inheritance, but this depends on a number of things, including the value of the asset, state laws, and more. You may be subject to tax if you start to make a profit from the asset you inherited. This is known as capital gains tax. For example, if the asset appreciates after you inherit it, and you then sell that asset, you’ll likely be taxed on the gain.
This is a crowdsourced article. Contributors are not necessarily affiliated with this website and their statements do not necessarily reflect the opinion of this website, other people, businesses, or other contributors.