All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 1
Registered: ‎10-02-2017

inheritance taxes

I received 1/2 of my grandmother's life insurance and 1/2 of her trust (less than 5 mil). Will I be paying any Federal tax or state - WV taxes? Second, when the insurance co. sent the life insurance money, they said they kept out 'taxes', what do I do there? Thanks!

Tax Pro
Posts: 5,615
Registered: ‎02-23-2016

Re: inheritance taxes

Hi schweetz,

 

 

Welcome to the H&R Block community.

 

When you inherit money or property it is taxable to you if it would have been taxable to the person from whom you inherited it.  For example, distributions of pretax funds and earnings from retirement & life insurance accounts are taxable for the federal income tax & state income tax, but not for the FICA taxes since they are unearned income.  This is why the insurance company withheld tax.  You will get some or all of the withholdings back as a tax refund if you end up not owing tax on your tax return or if you owe less than your total withholdings from all income sources.  In early February you should receive a Form 1099-R for all distributions that you received.

 

If you received any physical property then you won't owe tax on that until you sell it, at which time any gain from the sale may be subject to the capital gains tax.

 

Also note that amounts paid from retirement accounts as a result of the death of the beneficiary are exempt from the 10% early withdrawl penalty and the 1099-R for that type of distributions should have a code "4" in Box 7.

 

The main thing here though is that if it would have been taxable income to your grandmother then it is taxable income to you on both the federal and state levels.

 

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)