I have a question about reporting inheritance. I inherited two bank accounts and part of a mutual fund when my father died. The estate still isn’t settled, but I’ve received the money. Is inheritance taxable income?
Regarding your question: Is inheritance taxable income, no, you usually don’t include your inheritance in your taxable income. However, if the inheritance is considered income in respect of a decedent, you’ll be subject to some taxes.
Reporting inheritance income in respect of a decedent includes gross income items that would have been taxable to the deceased person. However, these items weren’t included on the final return. The items include:
- Employee compensation
- Benefit plan distributions
- Partnership income
- Interest and dividends
- Gain on sale of property
- Crops and livestock
- Installment obligations
If you received one of these, you must report it as income. Report it the same way the deceased person would have reported it.
However, if the estate reported the income in respect of a decedent, you don’t need to report it as income.
Adjusted Gross Income is simply your total gross income minus specific deductions. Additionally, your Adjusted Gross Income is the starting point for calculating your taxes and determining your eligibility for certain tax credits and deductions that you can use to help you lower your overall tax bill.
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