Do I Owe Taxes if I Got Money From My Mother When She Died?

Your inheritance may be subject to tax depending on your state of residence.

Your inheritance may be subject to tax depending on your state of residence.

You don't have to pay federal income taxes on money that you inherit from a decedent. However, as a general rule, the decedent's estate will be subject to federal and state taxation prior to distribution of the inheritance money. The most common taxes due are the estate tax and the inheritance tax, sometimes known as death taxes. These will depend on the state of your residence.

Estate Tax

Your late mother's estate comprises her possessions and debts. Before any distributions are made, the federal government has to take its share in form of an estate tax levied on the total value of her money and property. This is not necessarily your responsibility. The tax is typically paid by the estate itself and whoever is in charge of the estate must pay the taxes as well as other outstanding debts. However, there is a threshold before an estate tax is due: the value of the assets must exceed $5.34 million.

Inheritance Tax

You may have to pay an inheritance tax on the money inherited after the death of your mother. An inheritance tax is not a federal requirement -- it's a state tax that you have to pay as the beneficiary, unlike the federal estate tax that comes from the estate. Once the assets of the estate have been divided up and distributed to the beneficiaries, the inheritance tax amount is determined separately for every beneficiary. Not all states impose an inheritance tax.

States with Inheritance Tax

As of 2014, only eight states impose the inheritance tax. You'll part with some of your money if you live in Iowa, Indiana, Maryland, Kentucky, New Jersey, Nebraska, Pennsylvania or Tennessee. Tax rates on inheritances vary by state, ranging from 1 percent to 20 percent of the property value and/or cash you inherit. You may also be required to pay inheritance tax even if you don't live in these states but your mother lived or owned property there.

Inheritance Tax Exemptions

Some of the states give an exemption or reduction in the amount of inheritance tax you'll be required to pay based on your relationship with the decedent. Since you're a child of the decedent, you are likely to qualify for an exemption. Generally, those with no familial relationship with the decedent pay at the higher tax rates on their inheritance.


About the Author

Dr Jack Gordon, the Chief Technology Officer at Strontium Logistics, is a 20-year veteran of the engineering and marketing business who favors stiff drinks, good debates and developing innovative digital marketing strategies to help companies grow.

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