Monday, January 16, 2017

Will My Inheritance be Taxed?

When you learn that you will be inheriting stocks, mutual funds, bonds, or even cash, this can often help, at least somewhat, to take the sting out of the loss of a loved one. When you inherit these kinds of things, though, there are practical matters to consider, such as whether or not you will owe taxes on your newfound inheritance.   

The good news is that, in most cases, you do NOT owe taxes on your inheritance. If the total value of the related estate does not exceed $5.45 million (and that’s a lot!), your inheritance is exempt from federal taxes. Furthermore, the estate will need to pay the tax bill in this case, not the heir (you!).

However, if you make the decision to sell off your inheritance, then you could end up being subjected to some taxes. If, when you get ready to sell, your investment is worth more than it was when you received it, for example, you’ll owe capital gains taxes. Unfortunately, these can often add up quite a bit- up to as much as 20%- so you will want to be mindful about when you choose to sell these items and, thus, when you are subjected to the relevant tax.

Typically, the smartest time to sell your asset, at least when it comes to avoiding high taxes, is as soon as you receive it. The sooner you sell it, the less time it has to make money and, thus, garner a higher tax. You could also choose, though, to sell off parts of your inheritance, when applicable. That way, you won’t face a huge tax bill all at once but can just pay smaller taxes spread out over a period of time.


How you choose to reduce your tax bill, if you have one, is up to you, but the important thing is that you are aware of when you have to pay taxes and how you can help keep them under control! That way, you can actually enjoy your inheritance without having it ruined by a bunch of taxes!

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