Hi, I’m Bette Hochberger, CPA, CGMA. Today I’m going to give some guidance on the tax responsibilities that come with inherited property or wealth. 

 If you’ve ever received an inheritance, you know that the emotions involved can be a rollercoaster ride – from grief to gratitude and sometimes even a dash of confusion. So, let’s dive in and talk more about the tax implications that come along with inheritance.

Unraveling the Inheritance Tax Enigma

First things first, let’s clarify the basics. The majority of countries don’t levy taxes on the inheritances themselves. So, take a sigh of relief – you won’t be taxed simply for being the chosen one. However, before you break out the champagne, remember that this does not mean you’re entirely off the tax hook.

Estate Taxes

In some regions, estates are subject to taxes before being passed on to beneficiaries. Essentially, this tax is levied on the estate of the deceased before the distribution takes place. But don’t worry, there’s good news for most people – estate taxes usually apply to large estates, meaning the vast majority of inheritances aren’t affected. 

Inherited Property

If you inherit property, you might find yourself doing a happy dance as you enter your new home sweet home. But there’s a tax twist waiting for you. When you inherit property, the tax authorities treat it as if you bought it at the current market value. 

So, if you decide to sell, the tax implications will be based on the property’s appreciation since the original owner acquired it. Though, you might still qualify for certain deductions or tax breaks when you decide to make it someone else’s dream home.

Inherited Investments

Inherited investments can vary. Some inheritors do well with stocks that have increased in value, while others might need to handle taxable gains on investments carefully. 

Here’s a useful tip: The “stepped-up basis” rule is essential. It means that the assets’ value is adjusted to their value at the time of inheritance. This rule might help you avoid significant capital gains taxes.

Income Taxes on Inherited IRAs and Retirement Plans

When it comes to inheriting IRAs or other retirement accounts, you can expect income taxes to come knocking. The withdrawals from these inherited accounts are considered ordinary income, which means they’ll join the ranks of your regular earnings for tax purposes. 

Now, this is where tax planning comes in, so make sure to start that before going forward. If you’re not sure where to begin with tax planning, set up a meeting with me, and I’d be happy to help.

Gift Taxes

If your loved ones are feeling particularly generous during their lifetime and gift you a significant sum of money, you might wonder if there’s a catch. And indeed, there is – but don’t worry, it’s not on your end! In many countries, the giver, not the receiver, is responsible for gift taxes. If you want to learn more about gift taxes and how they work, click here.

Well, I hope you learned something new today. As always, stay safe, and I will see you next time.