shelby
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Post by shelby on Jan 25, 2018 12:03:33 GMT -5
Can someone give me an idea of what to expect with estate taxes? Like how are the beneficiary accounts taxed, are the properties taxed at the time of transfer? I really have no idea what to expect.
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Deleted
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Post by Deleted on Jan 25, 2018 12:11:46 GMT -5
How big of an estate? Anything under about 6 million or so is not taxed at all.
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shelby
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Post by shelby on Jan 25, 2018 12:27:03 GMT -5
well yes definitely under 6 million. But will I have to declare it as income on personal taxes?
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Post by Deleted on Jan 25, 2018 12:33:07 GMT -5
No. Even if it's over 6 million the tax is paid by the estate, not the person receiving it.
If you receive a property, the basis value is considered what it was worth at the time of death. So if you get a 300K house and turn around and sell it for 300K, there is no gain. If you keep it and sell it 10 years later for 400K you will owe tax on the 100K gain only.
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shelby
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Post by shelby on Jan 25, 2018 12:52:25 GMT -5
Ok I guess I am just confused because when I went to the financial advisor to have everything transferred to me she was talking about taxes being owed. So what you are saying when I file my taxes this year I won't even need to include the inherited accounts? I am getting mixed messages other people have told me even with a small inheritance their tax bill went up. So how will the estate be taxed...sorry for being so naïve. I figured taxes on property would only be if we sold.
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swamp
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Post by swamp on Jan 25, 2018 12:55:04 GMT -5
Ok I guess I am just confused because when I went to the financial advisor to have everything transferred to me she was talking about taxes being owed. So what you are saying when I file my taxes this year I won't even need to include the inherited accounts? I am getting mixed messages other people have told me even with a small inheritance their tax bill went up. So how will the estate be taxed...sorry for being so naïve. I figured taxes on property would only be if we sold. If you inherit cash outright under the estate tax limit, no tax consquences at all. If you are the beneficiary of a tax advantaged retirement account, you will have income tax consequences. If you inherit a house or a stock portfolio, you may have capital gains consequences. ETA:; I changed "will" to "may" in the last sentence. My error was pointed out to me.
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Post by Deleted on Jan 25, 2018 12:58:40 GMT -5
Ok I guess I am just confused because when I went to the financial advisor to have everything transferred to me she was talking about taxes being owed. So what you are saying when I file my taxes this year I won't even need to include the inherited accounts? I am getting mixed messages other people have told me even with a small inheritance their tax bill went up. So how will the estate be taxed...sorry for being so naïve. I figured taxes on property would only be if we sold. It's not taxed. I'm not sure what your financial advisor is talking about. Unless maybe the state has a tax? There's definitely no Federal though.
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tallguy
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Post by tallguy on Jan 25, 2018 13:01:00 GMT -5
Are we talking about federal or state taxes? Don't some states have an inheritance tax?
And if you inherit a house or a stock portfolio, don't you generally receive a step-up in basis?
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Post by Deleted on Jan 25, 2018 13:01:55 GMT -5
Oh yeah. IRAs are weird. But the capital gains tax on property or a stock portfolio should be zero at the time of inheritance, so that shouldn't be an immediate tax issue.
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swamp
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Post by swamp on Jan 25, 2018 13:02:02 GMT -5
Are we talking about federal or state taxes? Don't some states have an inheritance tax? And if you inherit a house or a stock portfolio, don't you generally receive a step-up in basis? <iframe width="23.59999999999991" height="3.5600000000000023" style="position: absolute; width: 23.6px; height: 3.56px; z-index: -9999; border-style: none; left: 0px; top: 0px;" id="MoatPxIOPT0_99880539"></iframe> <iframe width="23.59999999999991" height="3.5600000000000023" style="position: absolute; width: 23.6px; height: 3.56px; z-index: -9999; border-style: none; left: 1116px; top: -138px;" id="MoatPxIOPT0_18079590"></iframe> <iframe width="23.59999999999991" height="3.5600000000000023" style="position: absolute; width: 23.6px; height: 3.56px; z-index: -9999; border-style: none; left: 10px; top: -14px;" id="MoatPxIOPT0_59507729"></iframe> <iframe width="23.59999999999991" height="3.5600000000000023" style="position: absolute; width: 23.6px; height: 3.56px; z-index: -9999; border-style: none; left: 1116px; top: -14px;" id="MoatPxIOPT0_90407091"></iframe> Don't know. Yes. Yes.
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swamp
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Post by swamp on Jan 25, 2018 13:03:41 GMT -5
Oh yeah. IRAs are weird. But the capital gains tax on property or a stock portfolio should be zero at the time of inheritance, so that shouldn't be an immediate tax issue. If you liquidate and there has been a change in the market, you will have some personal capital gains consequences. Which is why i say "may" or "could." Never say never. Also, if the house was transferred prior to death, which is a very common estate planning technique, you don't get the stepped up basis and will get whopped with capital gains.
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haapai
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Post by haapai on Jan 25, 2018 13:06:55 GMT -5
You might want to check out the personal finance section of your local library. There might be some handbooks for executors there that can get you started, or at least help you absorb what a financial professional is saying.
If you go to the card catalogue and type in the name of a financial guru or the title of one of their books, you can probably save yourself quite a bit of time in finding that section. Or you can do a keyword search and hope that it directs you to settling an estate instead of estate planning.
Unfortunately, what you find will probably be written for a national audience and maddeningly vague. If you are lucky enough to find one that is specific to your state, familiarize yourself with the library's renewal policy.
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tallguy
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Post by tallguy on Jan 25, 2018 13:09:52 GMT -5
Oh yeah. IRAs are weird. But the capital gains tax on property or a stock portfolio should be zero at the time of inheritance, so that shouldn't be an immediate tax issue. If you liquidate and there has been a change in the market, you will have some personal capital gains consequences. Which is why i say "may" or "could." Never say never. Also, if the house was transferred prior to death, which is a very common estate planning technique, you don't get the stepped up basis and will get whopped with capital gains. Right, but I don't consider that "inheriting" a house. And why I would never do it. Creating a six-figure tax bill for nothing is not my idea of a good time, especially when it would be even higher later.
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resolution
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Post by resolution on Jan 25, 2018 13:13:41 GMT -5
If you inherit an IRA you may need to start taking required minimum distributions (RMD) and those RMDs may be taxable, depending on the type of IRA.
For state taxes, it is going to be dependent on the state. For example, Maryland has both an inheritance tax and an estate tax.
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swamp
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Post by swamp on Jan 25, 2018 13:15:06 GMT -5
If you liquidate and there has been a change in the market, you will have some personal capital gains consequences. Which is why i say "may" or "could." Never say never. Also, if the house was transferred prior to death, which is a very common estate planning technique, you don't get the stepped up basis and will get whopped with capital gains. Right, but I don't consider that "inheriting" a house. And why I would never do it. Creating a six-figure tax bill for nothing is not my idea of a good time, especially when it would be even higher later. You don't, but that's what it is. It's a gift that is complete upon death. And the tax bill isn't due until you sell it, so it's not like it's money out of your pocket. It comes out of the proceeds. In LCOLA areas, it's favored more than HCOLA places. There's pros and cons on both sides. The pre death transfer can protect against creditors at the cost of a lower basis. Pre death doesn't require probate or administration, so it avoids some issues that come up with probate, and lots of issues that come up with administration. Not an easy question to ask. I do lots of them because the houses aren't worth much, and that is basically the only asset the people have.
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Bonny
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Post by Bonny on Jan 25, 2018 14:07:12 GMT -5
Ok I guess I am just confused because when I went to the financial advisor to have everything transferred to me she was talking about taxes being owed. So what you are saying when I file my taxes this year I won't even need to include the inherited accounts? I am getting mixed messages other people have told me even with a small inheritance their tax bill went up. So how will the estate be taxed...sorry for being so naïve. I figured taxes on property would only be if we sold. Shelby,
What did you inherit and how were the assets titled?
I don't think anyone wants to second guess your tax person but even good ones make mistakes.
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WholeLottaNothin
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Post by WholeLottaNothin on Jan 25, 2018 15:08:04 GMT -5
Right, but I don't consider that "inheriting" a house. And why I would never do it. Creating a six-figure tax bill for nothing is not my idea of a good time, especially when it would be even higher later. You don't, but that's what it is. It's a gift that is complete upon death. And the tax bill isn't due until you sell it, so it's not like it's money out of your pocket. It comes out of the proceeds. In LCOLA areas, it's favored more than HCOLA places. There's pros and cons on both sides. The pre death transfer can protect against creditors at the cost of a lower basis. Pre death doesn't require probate or administration, so it avoids some issues that come up with probate, and lots of issues that come up with administration. Not an easy question to ask. I do lots of them because the houses aren't worth much, and that is basically the only asset the people have. My mother put her house in my sister and my name, maybe a year or so after our father died. He died suddenly in 2006, and they had nothing prepared. Her house is worth maybe $80,000 or so. Seeing as how we live in the same state, how screwed are we?
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dee27
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Post by dee27 on Jan 25, 2018 15:14:43 GMT -5
Ok I guess I am just confused because when I went to the financial advisor to have everything transferred to me she was talking about taxes being owed. So what you are saying when I file my taxes this year I won't even need to include the inherited accounts? I am getting mixed messages other people have told me even with a small inheritance their tax bill went up. So how will the estate be taxed...sorry for being so naïve. I figured taxes on property would only be if we sold. Consult with a CPA for advice.
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shelby
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Post by shelby on Jan 25, 2018 16:22:41 GMT -5
Bonny- She isn't an accountant and advised getting a CPA...so she may just be totally unaware of how it works. I am going to hire an accountant was thinking a CPA if tons of tax issues but if not wouldn't a regular account work? There was a retirement account mixed mostly CD's money market and small amount of stock. The properties are owned outright and will transfer to me and sister name after probate.
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lynnerself
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Post by lynnerself on Jan 25, 2018 16:38:11 GMT -5
If the retirement account is in a tax deferred vehicle (IRA, 401K etc) and you take a lump sum distribution, you will pay income taxes on the full amount, whatever it is invested in. And this will be on top of your regular income, probably putting you in a higher tax bracket. There are ways to take the distributions over many more years and spread out the taxes. Get advise on this.
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dee27
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Post by dee27 on Jan 25, 2018 16:53:26 GMT -5
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Lizard Queen
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Post by Lizard Queen on Jan 25, 2018 17:00:56 GMT -5
I inherited part of my dad's IRA, and I have to take rmd' s out of it every year, since he was over 70.5 when he died. The first year's rmd was based on his age (probably because he hadn't taken that year's yet), and after it is based on mine. Actually, my DB and I split my dad's rmd requirement that year so my DS didn't need to until the following year based upon her age. Fidelity's website explained it all very well.
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TheOtherMe
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Post by TheOtherMe on Jan 25, 2018 17:01:57 GMT -5
Bonny- She isn't an accountant and advised getting a CPA...so she may just be totally unaware of how it works. I am going to hire an accountant was thinking a CPA if tons of tax issues but if not wouldn't a regular account work? There was a retirement account mixed mostly CD's money market and small amount of stock. The properties are owned outright and will transfer to me and sister name after probate. I would suggest finding a tax person who specializes in estates. This estate is much more complicated than that of my dad. Good luck.
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TheOtherMe
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Post by TheOtherMe on Jan 25, 2018 17:03:45 GMT -5
I inherited part of my dad's IRA, and I have to take rmd' s out of it every year, since he was over 70.5 when he died. The first year's rmd was based on his age (probably because he hadn't taken that year's yet), and after it is based on mine. Actually, my DB and I split my dad's rmd requirement that year so my DS didn't need to until the following year based upon her age. Fidelity's website explained it all very well. Based on my 94 year old dad's current RMD, my sister and I will most likely inherit it. I know we will have income because of it. She even suggested having in take it all out at once. I asked her why should he pay taxes on a lump sum? That's the last time she has mentioned liquidating the IRA.
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Lizard Queen
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Post by Lizard Queen on Jan 25, 2018 17:06:10 GMT -5
I inherited part of my dad's IRA, and I have to take rmd' s out of it every year, since he was over 70.5 when he died. The first year's rmd was based on his age (probably because he hadn't taken that year's yet), and after it is based on mine. Actually, my DB and I split my dad's rmd requirement that year so my DS didn't need to until the following year based upon her age. Fidelity's website explained it all very well. Based on my 94 year old dad's current RMD, my sister and I will most likely inherit it. I know we will have income because of it. She even suggested having in take it all out at once. I asked her why should he pay taxes on a lump sum? That's the last time she has mentioned liquidating the IRA. At 94, I would imagine his RMD is pretty sizable anyway.
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TheOtherMe
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Post by TheOtherMe on Jan 25, 2018 17:09:45 GMT -5
He has been drawing on it since age 70.5. Mom's IRA was combined with his when she died.
His RMD isn't large enough to require him to file a tax return when added to his Social Security and pension.
He isn't wealthy. So it's estate planning for the lower middle class in our case.
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Bonny
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Post by Bonny on Jan 25, 2018 17:29:47 GMT -5
You don't, but that's what it is. It's a gift that is complete upon death. And the tax bill isn't due until you sell it, so it's not like it's money out of your pocket. It comes out of the proceeds. In LCOLA areas, it's favored more than HCOLA places. There's pros and cons on both sides. The pre death transfer can protect against creditors at the cost of a lower basis. Pre death doesn't require probate or administration, so it avoids some issues that come up with probate, and lots of issues that come up with administration. Not an easy question to ask. I do lots of them because the houses aren't worth much, and that is basically the only asset the people have. My mother put her house in my sister and my name, maybe a year or so after our father died. He died suddenly in 2006, and they had nothing prepared. Her house is worth maybe $80,000 or so. Seeing as how we live in the same state, how screwed are we? What state and what was the property worth in 2006 (approx.)?
In some community property states like CA, the entire property value would have adjusted, not just the husband's half. Therefore if the property was worth $65k in 2006 the basis would go to $65k. If you were to sell it today and assume $8k in sales costs the two of you would be splitting $7k in cap gains or $3.5k each. Nothing to get too concerned about.
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tskeeter
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Post by tskeeter on Jan 25, 2018 17:31:49 GMT -5
well yes definitely under 6 million. But will I have to declare it as income on personal taxes? You need to look at estate taxes for your state. Even though an estate may be exempt from federal estate taxes, about 9 states impose state estate taxes. Oregon, for example, imposes estate taxes on any estate of $1,000,000 or more. Inheritances are not taxable income to the recipient of the inheritance. Any taxes are paid by the estate of the deceased person. That’s why it is called an estate tax, not an inheritance tax.
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Bonny
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Post by Bonny on Jan 25, 2018 17:46:05 GMT -5
Bonny- She isn't an accountant and advised getting a CPA...so she may just be totally unaware of how it works. I am going to hire an accountant was thinking a CPA if tons of tax issues but if not wouldn't a regular account work? There was a retirement account mixed mostly CD's money market and small amount of stock. The properties are owned outright and will transfer to me and sister name after probate. If I'm reading your post correctly it sounds like you only need to be concerned about the retirement account. Is it an IRA? If so, you'll have a choice of taking it all at once on one extreme or on the other stretching out RMDs over your lifetime. You also can choose to take minimums with an option to take more in certain years until it's all gone. As an example, if you are 50 and planning on retiring at 55, you might take the minimum for the first five years while you still have your salary, then take heavier withdrawals until age 67 when you could take full SS. Or whatever suits your particular situation.
Here's the link to the IRS website that will give you the RMD table: www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries
In addition, don't forget that as Executor/Trustee you will need to file tax returns for the estate/Trust until all of the assets are distributed.
If the IRA is sizeable it's generally worth it to do some modeling to see how the situation works best for your situation.
ETA: I noticed your post on another thread. I didn't realize the two properties are rented. The estate will need to report that rental income and do schedule "Es" which report expenses and depreciation. There may be some taxes owed on that income. Was somebody preparing his taxes before he died? If so I would continue to use that person to wrap up the estate.
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Lizard Queen
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Post by Lizard Queen on Jan 25, 2018 17:47:59 GMT -5
He has been drawing on it since age 70.5. Mom's IRA was combined with his when she died. His RMD isn't large enough to require him to file a tax return when added to his Social Security and pension. He isn't wealthy. So it's estate planning for the lower middle class in our case. Sorry, I meant a sizable percentage. I had thought the tables basically zeroed out the account by 105, but I guess it's actually 115.
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