Mod­est es­tate should not have tax im­pli­ca­tions for heirs

Sun Sentinel Broward Edition - Homespot - Broward East - - REAL ESTATE NEWS/PEOPLE ON THE MOVE LIVING G SPACE - By Kathryn We­ber,

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,”

Brodie says.

“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.

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