Taxes

Will I Have to Pay Taxes on My Inheritance?

The tax implications for an inheritance vary depending on the state of residence, size of the estate and type of asset received. To get a handle on how much tax you may owe, it is important to first note the broad term “taxes” encompasses multiple specific types of taxes that often result from wealth transfer.

Estate Tax

Estates may be subject to estate tax before beneficiaries can receive an inheritance. As of 2017, estates valued over $5.49 million pay a 40% federal estate tax, but twelve states and Washington, D.C.[1] levy their own estate taxes as well, lowering the potential inheritance amount beneficiaries can receive.

Inheritance Tax

As a beneficiary, your inheritance may be subject to inheritance tax. There is currently no federal inheritance tax, but as of 2017, six states[2] levy an inheritance tax. The inheritance tax rate varies across the six states, so be sure to check with your tax advisor to determine your inheritance tax liability.

Income Tax

As a beneficiary, any inheritance you receive is not considered income for federal tax purposes, whether you inherit cash, investments or property. However, any earnings you may receive on your inherited assets – after you have received them – are taxable. Remember to always check with your tax advisor to assess your personal situation.

Capital Gains Tax

Inherited property, such as stocks or real estate, may be subject to capital gains tax when and if you sell it. Inherited property benefits from a “stepped up” basis when determining capital gains tax liability. Instead of using the original purchase cost as the basis for capital gains tax, it is stepped up to the value at the date of the estate owner’s death. Make sure you contact your tax advisor about any potential capital gains tax liability.

 

[1] Connecticut, Hawaii, Illinois, Maine, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington

[2] Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania

Fifth Third Bank does not provide tax or legal advice. Please consult your tax adviser or attorney before making any decisions or taking any action based on this information. This information is provided for educational purposes only and does not constitute the rendering of tax or legal advice.

Fifth Third Bancorp provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and a registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Securities and investments offered through Fifth Third Securities, Inc. and insurance products:

Are Not FDIC Insured | Offer No Bank Guarantee | May Lose Value
Are Not Insured By Any Federal Government Agency | Are Not A Deposit
Insurance products made available through Fifth Third Insurance Agency, Inc.
© 2018 Fifth Third Bank

Need Guidance?

A Fifth Third Bank advisor can assist with your estate planning and settlement questions.

Ask an Advisor
Equip Yourself for Success

Create an account to access our interactive checklists. Add Asset Manager to streamline your estate planning or executor duties.

Sign Up Today
Notices & Disclosures
Ask an Advisor