Modest estate should not have tax implications for heirs
Tribune Content Agency Q:
We are dealing with our mom’s estate and have no idea what to expect tax-wise. There are four of us that will inherit equally. All of us live in the Atlanta metro area with the exception of a sister that lives in Ontario, Canada.
My sister and I are the executors of the estate, and all four of us are in agreement with what’s happened so far. Each one of us is updated with what’s been deposited and what’s been paid to settle Mom’s final bills.
We closed Mom’s Merrill Lynch account and had the $50,000 deposited into an estate account. Also, one of us is buying our mother’s house and the money from the sale will be deposited into the same estate account.
Our question is, will there be taxes to be paid for the sale of the house? How will this situation play out on our individual tax returns? We will realize less than $35,000 each once the estate is divided.
Do we report this as additional income from the inheritance when we file our taxes? Will we owe taxes on this? The sister in Ontario has dual citizenship, U.S. and Canadian. How will her inheritance impact her tax burden? Do we report it at all?
We’ve heard so many different things that we are fearful of doing something that will get us in trouble with IRS. Two of us live on a fixed income and can afford no surprises later on by being misinformed and not doing something we should have done and didn’t. A:
We consulted two Georgia-based tax experts, and their first response was to make the assumption that your mom’s house is in the U.S.
According to enrolled agents Bill Nemeth and Merry Brodie, inheritance proceeds (especially those in cash) are generally not taxable to the beneficiary (also known as the recipient) in the U.S.
“In 2013, the year in which your mom died, the estate tax threshold was $5.25 million, so there should be no estate tax (or death tax, as the politicians call it) owed on the value of Mom’s estate,”
“The sale of the stocks and the home should be reported on your mom’s estate tax Form 1041 (Tax Return for Estates and Trusts), and because of the step-up in basis, there should be no taxable income to Mom or the beneficiaries,” Nemeth adds. “The daughter purchasing Mom’s home is treated like any other purchaser in any other transaction.”
The real issue comes with your sibling in Canada with dual citizenship. Nemeth and Brodie agree that she will not report taxable income on her inheritance for U.S. purposes. However, she needs to seek professional counsel in Canada to address the tax treatment there.
The siblings that are on a very tight fixed income should be fine. But if the sibling who has a few more dollars to spend wants to offer to help the others with their tax returns, it might be a very nice New Year’s gift and will certainly help them feel more comfortable about enjoying their inheritances.
For more information, contact Kathryn Weber through her Web site, www.redlotusletter.com.
(c) 2013 Kathryn Weber. Distributed by Tribune Content Agency, LLC.