Inheriting the assets of a loved one who has passed on can be stressful, especially if you’re not sure whether it’s subject to tax. While the executor will make sure the estate taxes are paid, beneficiaries may also be subject to separate levies. If you’ve inherited property, below are a few aspects you should understand before starting your tax return preparation.

What Is the Inheritance Tax?

Fortunately, the federal government considers inherited assets to be non-taxable, regardless of the value of the estate. However, Nebraska and many other jurisdictions levy an 18% tax on inheritances received from state residents who pass away. Only the spouse of the deceased is exempt, so children, grandchildren, and anyone else who inherits property will have to pay this tax.

How Does It Affect Your Income Taxes?

While inheritances aren’t considered taxable income, assets that generate revenue can complicate your tax return preparation. For instance, if you receive a 401(k) or IRA account from a family member, any disbursements you make in the future have to be claimed on your tax returns. Fortunately, these taxes aren’t owed until you make a withdrawal.

How Does an Inheritance Change the Capital Gains Taxes?

If you sell property for more than the original purchase price, the profits may be subject to capital gains taxes. Fortunately, the tax basis of inherited property is “stepped up” to when you inherited it. So if you inherit a house worth $200,000 and sell it for $250,000 several years later, the $50,000 is subject to the capital gains tax.

Capital gains tax brackets are generally lower than income tax ones, and in some cases, you may not have to pay anything at all. A tax return preparation professional can help minimize the burden if you decide to sell inherited property.

If you’ve inherited a loved one’s assets, the accounting team at Balanced Bookkeeping & Tax Services will guide you through the codes and provide the detailed services you need. Their tax return preparation professionals have years of experience serving families throughout the Lincoln, NE, area, and have an in-depth understanding of the constantly evolving tax law. Visit their website for more on their tax return preparation services, or call (402) 466-4272 to make an appointment today.