I have received $53,525 as proceeds from the sale of property that my mother left as an inheritance. What percentage will I have to pay as taxes and when do I pay them? Also, I would like to give some of the funds to my three children as a gift. What are the tax implications for that?
"Taxation of inherited property falls under capital gain rules," said FPA member William F. Keats, CFP®, CSA, of Keats Tax & Financial Services. "The basis of property inherited from a decedent is the fair market value (FMV) on date of death. If there was a Form 706 (Estate Return) filed, use the value on there. In most cases, this is also FMV unless an alternate value is used."
"In many cases, you will have zero tax, or a very small tax, using long-term capital gains rates to figure your tax," Keats said. The maximum rates for people in 25 percent or higher tax bracket is 15 percent. For the 10 to 15 percent tax bracket taxpayer, the rate is zero percent. The tax is paid at the time you file your return. In other words, "if the sale took place this year, you will pay taxes when you file your personal tax return for 2010 by April 15, 2011," said FPA member Chris Leeshun Lam, MBA, CPA, CFP®, of Lam Wang & Company. Lam also suggested that you to check with the attorney and/or accountant who prepared your mother's estate tax return.
As for the gifts to your three children, Keats said you may give up to $13,000 to each child without any tax consequences. "Depending on where you reside, your particular state may have different rules on the inheritance question," said Keats.
As with most things related to financial planning, you should consider seeking the help of a qualified professional who can gather the required data to address your question in a more comprehensive and thorough fashion.