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Do i need to report a cash inheritance as income on my income tax return??

Cornelius, OR |

the amount is roughly $10000...i received as settlement of my mothers estate

Attorney Answers 3


No, you do not. Inheritance is not income.

This is not legal advice. This is to be used for educational purposes only.

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Not likely, UNLESS it is a"death benefit" as defined by the IRS. You should tell your tax preparer about the money.

Be sure to designate "best answer." Please be aware that each answer on this website is based upon the facts, or lack thereof, provided in the question. To be sure you get complete and comprehensive answers, based upon the totality of your situation, contact a local attorney who specializes in the area of law that involves your legal problem. Diane L. Gruber has been practicing law in Oregon for 27 years, specializing in family law, bankruptcy, estate planning and probate. Note: Diane L. Gruber does not represent you until a written fee agreement has been signed by you and Diane L. Gruber, and the fee listed in the agreement has been paid.

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Generally speaking an inheitance is not taxable as income. Income tax applies to active earnings from working and getting paid wages or passive income generally from investments like interest paid on a bank account or bonds, dividends paid on stock or capital gains paid on the profit you get when you sell an appreciated asset.

So to determine if an item recieved in an inheiritance might involve a tax debt you must first look at whether it would have involved taxes being owed by the previous owner. For example if the money was in a retiremement account like an ira or 401k, it would be a form of tax deffered wages that the decedant would have had to have reported and paid taxes on. You would then also need to report the money and pay the deferred taxes when you liquidate the retirement account but there may be special elections you can make as an heir that will allow you to spread out the withdrawals over several years and that will reduce the taxes you pay.

Sometimes inheirited property can create a tax debt when it is held for a while by the heir and later sold for more then it was worth when it was inheirited. This could happen with real estate, valuable art and antiques or investments. But this wouldn't normally be an issue with cash.

So in order to answer your question we would need to know whst kind of fund your money was in before you inheirited it. You can also ask a tax professional.

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Joanne Reisman

Joanne Reisman


Also heirs may be asked to contribute money back to the estate if it is later determined that the estate had unpaid debts or taxes. The creditors of a decedant including the irs can grab back money previously distributed to satisfy an unpaid debt of the estate.

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