Does an inheritance count as income?

We often get asked if inheritances are taxable. In most cases, the answer is no, inheritances are not taxable. Typically, the deceased person would have to have a net worth of 11 million dollars, or 22 million dollars as a couple before you have to pay inheritance tax. However, you could still be subject to estate income tax.

Inherited IRA

If you inherit an IRA, assuming it is not from a spouse, it will be taxable when you withdraw the funds. The funds have to be withdrawn from the account within 10 years of inheriting it. If it’s a Roth IRA, it’s not taxable, but you still have to withdraw the funds within 10 years.

Inheriting a Brokerage Account with Securities

Moreover, if you inherit a brokerage account with securities in it, you get what’s called a step up in basis. This is a nice advantage to passing on assets through a brokerage account.

Inheriting an Annuity

We are not a fan of annuities for may reasons, but if you inherit an annuity, the gain that you’ve received in that annuity is going to be taxed at regular income.

Inheriting a House

If you inherit a house, you get a step up in basis. For example, if I give money, do I pay a gift tax? The answer by default is yes, unless the gift is less than $15,000. If you gift over $15,000, then it will be taxed.

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Casey Smith
President, Wiser Wealth Management

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By Published On: September 16, 2022

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