Inherited Money Generally Not Taxable

"Do I have to pay Federal Income Tax on my inheritance?"

                Clients are constantly asking us if their inheritances are subject to federal income tax, and with certain exceptions such as IRAs with deferred tax portions, the answer is usually no.  Neither Florida nor the federal government will impose a tax on you for inheriting money or property.  (A few states do.)

                When they express surprise, they are forgetting that “income tax” is a tax on “income,” not gifts.  If you are asked, “What’s your income?” you know they are asking how much money you earn by working, or how much is your pension or other regular source of income. They are not asking how much you got as a one-time gift.

                Inheritances are one-time gifts.  The federal tax on gifts is tied to the estate tax, and the threshold is quite high before any tax is due. If a tax is due, it’s due by the giver or the estate, not by the person receiving the gift. 

                So when you inherit some money or a house from a relative, say thanks (even if they can’t hear you) for the gift and thanks that it’s tax-free.