My parent's estate should be closing in the next month or two. It actually should have been closed a few months ago but the IRS screwed up the tax returns and is taking their sweet time going over them again.

Anyway, I will be inheriting about $30K from what he had in the bank and the sale of the house. My question is do I have to pay taxes on this? If so is it taxed as normal income or something else? I'd be real happy if the IRS didn't even know about it, but when I go to deposit a $30K check won't it trigger an automatic notice to them since it's over $10K?

Thanks in advance for any advice.

Talk to an accountant but I doubt you owe anything. There probably will be a return for the estate.

The 10k trigger is for cash only.

This from a local institutions staff in response to some questions I had.

Not an IRS Enrolled agent or expert but you are well under the threshold for it to be taxable unless your parent had already used up their exemption. Doesn't sound like that is the case.
Current Federal estate gift tax threshold is over $4 million or so if my google foo is accurate. State tax can be different.

I inherited a similar amount from my grandparents estate. The CPA that filed the final tax return and sent out final checks to the grandchildren included a form letter to explicitly state the inheritance was tax free to the recipient (me) and that it was my separate property and my wife would only have a claim on it if I put the funds in a joint account. I live in California with the worst taxes in the world so I assume your situation the same or better. I should note the grandkids all ended up with a check. My mom and her sister inherited real estate and stocks as well as cash, they each got the step up in basis on date of death and sold the house within months. They had no tax liability either. Consult your own CPA of course.

Having done my Dads, and now just finishing up my Uncles is the only experience I have so YMMV!
You should not owe anything.
The accountant for the estate may file a form on behalf of the estate stating to whom the money was dispersed and the amounts. Ours is doing this, but implied it might not be strictly required by tax law, but he said it was the best way to handle it. IDK. I just have to defer to the Lawyer and Accountant. He had to be provided all the heirs SS# etc. for this purpose. Sorry can't remember the form #. You should receive a copy if it is filed.
It gives you a bonafide source for the cash, and its tax status in case it is ever questioned if the funds were obtained by legal means or not. I was advised to report it... and that process should show no tax is due. The IRS will know about it anyway if the form is filed... if it goes like ours did... The Executor of the estate should be able to confirm.
Again, your circumstances may be different.

Typically, inheritances are tax free. The estate is responsible for inheritance or estate taxes. The exception is if the estate is earning income, i.e. investment income on the assets. That could be passed through and taxed. You would get a form from the estate (Form 1041 K-1) to report those earnings.

Inheritance is subject to taxation in some states. In PA for example, inheritance is subject to the following tax rates: 4.5% for transfers to direct descendants (lineal heirs), 12% for transfers to siblings, and 15% for transfers to all other heirs. The Ohio inheritance tax was repealed in 2013. Provided your parents lived in Ohio, heirs and beneficiaries would inherit property tax free. If however your parents lived in a state that does collect inheritance tax, you may get a tax bill from that state. Either way, inheritance is not considered taxable as income and $30K is well below the federal estate tax exemption of $5 million.

quote:

Originally posted by weekendshooter:
Typically, inheritances are tax free. The estate is responsible for inheritance or estate taxes. The exception is if the estate is earning income, i.e. investment income on the assets. That could be passed through and taxed. You would get a form from the estate (Form 1041 K-1) to report those earnings.

My mother in law's trust took a couple of years to close out. The income earned (by the trust) is taxed and reported to the beneficiaries on Form 1041 K-1 and it's our responsibility to make sure the K-1 is reported on our joint return. This can be a PITA if the K-1 doesn't come until April 14th!

  
The estate itself pays whatever taxes are owed on the estate tax return. Whatever is left, which you inherit, it tax free to you. Not only that, if any stocks are involved, you get what is called a "stepped up basis". This means the stocks take on the value they had at the time your family member died. When you go to sell them, your capitol gain (if any) is calculated on that basis. This really benefitted me as my Dad had some Exxon/Mobil and AT&T stock he had bought in the 1950's. If I had had to pay capitol gains based on his purchase price, it would have hurt. Instead, the stepped up basis made it much less painful.
 

Estates from one individual are exempt from federal estate tax up to $5.49 million. If there is a tax, the estate pays it, not the person receiving a distribution.

If your dad's estate owed taxes, you would already know. But based on the numbers you are describing, it sounds like he was under the exempt amount.

Check to see what your state does, if anything.

The $10,000 you are confusing is a mandatory currency transaction report (CTR) a bank makes for currency transactions of $10,000 and up. It is isn't cash, there is no CTR. I don't know that the CTR makes its way directly to the IRS - you know how inefficient the government is. It is an anti-money laundering measure, and the report itself goes from a bank to an anti-crime division of the Treasury Department.

Thanks for all the help everyone! I googled a few things after reading some of the replies and that information will help me with my retirement and estate planning. Specifically that some states tax states, Delaware and PA being a couple of them. I had thought about retiring in one of the two. I gives me something to ask my financial guy when we meet next time.

Again, thanks for the help.

Not much to add, with regard to taxes,except that my dad passed away last year and we just filed a return for 2016 for him. It was very helpful to have his regular tax CPA help with the filing, even though it only covered one month of revenue and taxes. There are forms required when filing for a deceased person, and we had already given the CPA a copy of the Letter of Testementary.

The IRS screw up in my dad's estate goes something like this.
He was in and out of the hospital pretty much all of 2015 before passing, so he kept filing extension with the IRS through HR Block. For some reason, HR Block filed his taxes instead of filing an extension. The numbers they used were off the top of my dad's head, and due to obvious health issues and oxycontin, he was far from clear thinking. So, instead of trying to get HR to fix their screw up, we just had the estate lawyer get an accountant to fix/amend 2014's returns and to file the 2015 estate taxes. Where the screwup happened is the IRS amended the 2015 estate taxes instead of the 2014 taxes. They said he owed $25K! He didn't have that kind of income. So we had to file a PoA so the accountant and lawyer could talk to the IRS and tell them where they screwed up. This happened back in late January, last we heard from the IRS, last week, was that they need another 45 days. Gotta love it....

quote:

Originally posted by dingode:
Thanks for all the help everyone! I googled a few things after reading some of the replies and that information will help me with my retirement and estate planning. Specifically that some states tax states, Delaware and PA being a couple of them. I had thought about retiring in one of the two. I gives me something to ask my financial guy when we meet next time.

Both Delaware and PA are listed among the more expensive states to die in.