Is Money That Is Inherited Taxable?


Quick Answer

In general, money that is inherited is not considered income and is not subject to state or federal income tax. However, there are instances when one might be taxed on an inheritance. For instance, if one inherits an IRA or 401(k), distributions taken must be included in federal income.

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Full Answer

Inherited real estate and stocks are subject to capital gains taxes the year in which they are sold. They are taxable at the difference between the value when inherited and the sales price. Federal estate taxes only have to be paid on amounts exceeding the 2014 exemption of $5,340,000. Only 15 states and the District of Columbia collect state estate taxes, and there are state exemption amounts as well that the inheritance would have to exceed to be taxable. As far as state inheritance taxes go, only six states collect them.

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