Small Inheritance - Tax Liability?
 

As many of you know, I lost both of my parents last year, Dad at the end of January and Mum in September. Well, I got a small inheritance from my Dad (half of his 50% of the home they lived in) to the amount of a little under $40,000.

This was transferred from the UK by the solicitor to my bank account and it showed up today. My question is, will IRS have ant interest in the for of tax or, as it's an inheritance, is there no tax liability?

We intend to save as much as possible and convert some of it into IRAs, but would like to know so that come next April, when it's all been 'dispersed', there are no nasty surprises!

We've always been relatively poor. Not paycheck to paycheck, but not well planned for the future, so I'd love to hang on to as much of it as possible and for as long as possible!

Re: Small Inheritance - Tax Liability?
 

I had a more substantial inheritance from my aunt in Germany several years ago and no, IRS was not interested in the amount. Did not have to list it on tax forms. Only interested earned on those funds during the tax year was taxable.

Re: Small Inheritance - Tax Liability?
 

If you do a search you will find a number of threads on the topic of inheritances, including the form to file with your US taxes, the 3520. (Don't worry, it is purely informational, no taxes will be levied! And it may be only necessary for larger amounts, I can't quite recall.) However, you are liable for tax on any interest accrued on the inheritance during the administration period. I received a UK Revenue form R185 from the Executor, and was advised by him (an accountant) that the form showed my percentage of the net income during the administration period and the tax already deducted therefrom. He told me the total gross figure that I needed to declare on my US tax return and the amount of UK tax that had already been paid thereon that I also needed to indicate. I was to convert both figures into USD and he suggested that I use the exchange rate on the date on which the legacy funds were transferred to me.

Re: Small Inheritance - Tax Liability?
 

Your good to go.
No liability.
I believe you don't even need to report it.

Re: Small Inheritance - Tax Liability?
 

Cool, thanks all.

Re: Small Inheritance - Tax Liability?
 

It depends potentially on the state where you live, a few levy a tax on inheritances, even though, as you have been advised above, the IRS does not. I don't think that GA (you're in GA, right? :unsure:) levies a tax on estates, but you should check.

Re: Small Inheritance - Tax Liability?
 

No GA state inheritance tax since 2014.

https://dor.georgia.gov/estate-tax-f...ed_links-486-0

Re: Small Inheritance - Tax Liability?
 

States' estate and inheritance taxes.

https://www.nerdwallet.com/blog/taxe...ritance-taxes/

Re: Small Inheritance - Tax Liability?
 

Yes, I'm in Georgia and this is great news.

Interestingly, my SO was talking to a co-worker about this and she said 'Oh, when Gary got an inheritance, he said it was his money and spent it on stuff for himself'! Whilst I guess I could have done that, it was never a question as all our money has always been 'communal' an we both can use it.

Re: Small Inheritance - Tax Liability?
 

Gary might find he needs to sell some of the stuff he bought for himself to fund the divorce settlement ;)

Re: Small Inheritance - Tax Liability?
 

Well it must certainly have made for an "interesting" marital relationship! :unsure:

Re: Small Inheritance - Tax Liability?
 

If you live in a community property state, legally speaking at least, an inheritance is considered the separate property of the inheritor.

Re: Small Inheritance - Tax Liability?
 

But surely it would become a marital asset, to be split in the event of a divorce, the moment it hit a bank account? :unsure:

Re: Small Inheritance - Tax Liability?
 

Not if you don't commingle it with community assets (i.e you have a bank account in your own name which many couples do) or you can trace the origin of the separate property funds. Additionally, some "high net worth" couples will address future inheritances in a pre-nup to spell out that they get treated as separate property, often so that something of value to a family can get passed down to heirs with no risk of division.

Re: Small Inheritance - Tax Liability?
 

Almost all of the money I received from my father's estate went to pay off the credit card debt I'd racked up flying over to the UK every few weeks during his final months!

We have only just finished spending the frequent flyer miles I racked up then though.