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Question for the Money Doctors

Question submitted on Apr 15, 2010.

Question

I have just learned that I am inheriting some money. I live in North Carolina and the inheritance will be coming from Alabama. How much tax is involved and will I need to pay for both states? Does it depend on the dollar amount I am receiving?

Answer

Usually, inheritances are not subject to income tax. If the inheritance is subject to estate tax, the descendant’s estate is responsible for paying it.

There are some situations where you may be subject to income tax. If the descendant had "income in respect of a descendant", your share of that would be taxable to you. If the money is coming out of a retirement account or an IRA, that would be taxable to you. Typically, however, nothing would be taxable to you. I suggest that you ask the executor if any of the distribution will be taxable and, if so, how much of it will be taxable.


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