Many people think that they are not taxed on inheritance. They confuse an inheritance tax, which does not exist in Texas, with income tax on things they inherit.
Apart from life insurance, anything you inherit is subject to income tax or, if something which you later sell, capital gains taxes. From a tax perspective, it is better to inherit “things,” such as real property, and sell them because the capital gains tax is based on the difference between the net sales price and the fair market value on the date of death. Ordinary income tax rates apply to income received through distributions from an estate, overdue alimony and anything the person earned before death.
Are you planning inheritances? Learn more about how to leave a “low tax” inheritance here: Three Ways To Leave a “Low Tax” Inheritance
Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.