By Dick Nadler, CPA
I recently inherited $65,000 from my mother's estate. Do I need to pay a California or federal estate or inheritance tax? Will I still need to declare this as income and thus be taxed again?
Your inheritance of $65,000 for income tax purposes is tax free. The trustee or executor will have paid the federal and California estate taxes, if any, as part of the administration process. It is not your responsibility.
During the administration period of the estate or trust, certain assets may have earned some income and the trustee or executor may have paid some deductible expenses. If you are a beneficiary, the trustee or executor must issue a 1041/541 K-1 report for your pro rata share of the income received. You may have to pay some income tax for what the trust or estate earned; however, that amount will probably be significantly less than the actual inheritance. (Note, however, that if you receive the money as a specific bequest, you will not get a K-1 report. Nevertheless, you will not owe taxes on the bequest.)
You should contact the trustee or executor to determine when you will receive your 1041/541 K-1 reports and the approximate amount of taxable income distributed to you. In many estates, the expenses are greater than income. If that is the case, the federal and California K-1 reports will have a line item "excess deductions upon termination of an estate." That item will be deductible on Schedule A of your personal income tax returns (1040/540).
Dick Nadler, CPA, is principal of Nadler Accountancy Corp., Orangevale, Calif., and a member of the California Society of CPAs, Sacramento Chapter. His e-mail address is email@example.com.
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