Hi all.
I know there's so many variables, but I'll take any direction or comments I can get right now.
Person in Alabama passes away and leaves part of their assets (an amount of money) to someone in California (65+ years old).
Recipient is not working, basically gets social security only. Does the recipient have to pay taxes? Is that considered income, and will be taxed just as normal income?
How does that work? Any comments, direction, anything?
Thanks DougB
The recipient receives the money tax free. It's the donor (deceased) who is liable to pay estate taxes, if any. Remarkably, there is little detail needed for this question. (Had you asked when the donor's estate had to pay tax, the question gets complicated). I checked the current laws for Alabama and California, and they both indicate no tax is due. JOE
Nothing federal. There may be some state inheritance taxes for the heirs to pay (as opposed to state and federal estate taxes, which are paid by the estate)
No.
It's a non-event with respect to income tax. Nothing is reported, no income taxes are paid.
It also gets more complicated if the assets are in the form of an IRA or 401k or other forms.
But if it's just plain cash (or securities) in a plain old taxable account, no, recipient pays no taxes on it.
If it includes appreciated securities (or, actually, other appreciated property which has unrealized capital gains) there is actually a tax *benefit* in the form of stepped-up tax basis when the recipient gets around to actually selling the stuff.
There may be a federal estate tax due, but ONLY if the total estate is greater than 2 million.
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