Money.
Inheritance income is the taxable income received from an inheritance. Inheritances are treated in a special way by tax legislation and not all aspects of an inheritance will be subject to income tax. Exceptions include inheritances above a certain amount, as well as specific types of inheritance, such as retirement accounts. If they are included in an inheritance, they are considered inheritance income and people must pay taxes on them. An accountant can provide assistance in properly and accurately completing estate tax returns.
The tax code is generally tolerant of inheritance to avoid penalizing people for inheriting and to encourage people to retain assets to bequeath to descendants. Things like real estate are not taxed as inheritance income, as are cash bequests below a certain value. When people inherit retirement accounts, they are considered inheritance income and people must pay taxes on the funds distributed from these accounts. There is a space on tax forms to report inheritance income along with other income for a given tax year.
The amount of taxes paid varies based on account size and distributions, among other matters. Expenses associated with estate income may be offset by deductions as expenses associated with the processing of an estate. The tax code can get quite complex with large properties, especially those that contain many different types of assets. People concerned about the income from the inheritance and its impact on the beneficiaries of their property can consult an accountant for information on the best way to settle an inheritance.
The tax code is constantly being reviewed and changed. The government may periodically change inheritance income patterns and related items. People concerned about managing a property should make sure they are using the correct year’s tax information. The government cannot retroactively tax people for inheritances, but people should not assume that experience handling a previous estate will also apply to the liquidation of a different estate, as the law may change.
While many aspects of an estate may not be taxable, they can affect eligibility for government benefits and assistance. Many government programs have asset limits as well as income limits, and people can become ineligible for things like food stamps if they inherit valuable assets with property, even if they don’t receive income. This is a consideration that people should take into account when developing an estate plan. Setting up a trust can allow people to benefit from property without affecting their eligibility for benefits.