If you’re lucky enough to inherit assets, the amount you receive may be less than expected, depending on taxes and other factors.
An estate tax may be leveled at both federal and state levels. At the federal level, the 2015 exemption is $5,430,000, so you won’t owe any federal estate taxes if the deceased’s estate is less than this.
Only a handful of states collect estate taxes (and the state that applies is the one in which the deceased lived or owned property, not your state). As with federal taxes, there’s an exemption level that varies by state.
There’s also an inheritance tax. Chances are this may not apply, because only six states collect it: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. In all of these states, property passing to a surviving spouse is exempt, and in most of them, the same is true when passing property to children and grandchildren.
In general, an inheritance is not considered income, so you won’t have to report it on your income tax return. But there are other costs to consider. For example, if someone leaves you a house, you may want to sell it, which will involve real estate agent fees. If you inherit stocks, you’ll have to pay a brokerage commission to sell them. And if you inherit an IRA, you’ll have to pay tax on the distribution just as the deceased would have.
The latter, especially, can get complex, so it’s a good idea to talk to your advisor if an inheritance is a possibility.