Receiving an inheritance is something that most people would welcome. Tax consequences are probably not the first thing you would think about when you receive assets or money, but they play an important role in your life. Taxes may increase or reduce the value of your inheritance.
Are there any tax consequences to receiving an inheritance?
Arizona does have a personal income tax that could affect your inheritance. Generally, you will not declare inherited assets (e.g. stocks or real property) on your Arizona income tax return.1 You will usually have to include investment income up to the date of the decedent’s death from interest or dividends on your Arizona income tax, though.2 You will have to pay income tax on any benefits you receive from a retirement account of a decedent as well.3 The government will also sometimes exempt certain property from taxes or offer ways to reduce them in certain circumstances.4
Estate, Property, and Inheritance TaxesSelling an Inherited Asset
There could be tax consequences or benefits depending on what you do with your inheritance. For example, if you sell your inherited asset then your tax basis will be the date of the deceased owner’s death instead of the date the original owner bought the asset.18 This is a good thing for you, because the only capital gains you have to report are the ones that occurred after the date of the decedent’s death (so it looks like you bought the person the day the decedent died).19
Contact an experienced Phoenix estate planning attorney and tax lawyer at Ariano & Reppucci for more information about the tax consequences of inheritance.
1 Nancy Cross, Do You Report Income Tax On An Inheritance In Arizona?, BUDGETING.THENEST.COM, http://budgeting.thenest.com/report-income-tax-inheritance-arizona-34222.html (last visited Jan. 28, 2015).
3 Robert Fleming, Even With No Estate Tax, Some Tax May Be Due on Inheritance, ISSUES.FLEMINGANDCURTI.COM (June 9, 2014), http://issues.flemingandcurti.com/2014/06/08/even-with-no-estate-tax-some-tax-may-be-due-on-inheritance/.
4 Fraser Sherman, What Taxes Are On An Inherited House?, HOMEGUIDES.SFGATE.COM, http://homeguides.sfgate.com/taxes-inherited-house-7918.html (last visited Jan. 28, 2015).
6 Estate Tax, IRS.GOV, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax (last visited Jan. 28, 2015).
8 Frequently Asked Questions On Estate Taxes, IRS.GOV, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes#5 (last updated Nov. 17, 2014).
9 Julie Garber, Does Arizona Collect An Estate Tax?, WILLS.ABOUT.COM, http://wills.about.com/od/arizona/qt/arizonaestatetaxes.htm (last visited Jan. 28, 2015).
11 Fraser Sherman, supra note 4.
14 McGuireWoods LLP State Death Tax Chart, MCGUIREWOODS.COM, http://www.mcguirewoods.com/news-resources/publications/taxation/state_death_tax_chart.pdf (last updated Jan. 26, 2015).
15 Summary of Arizona Taxes, AZDOR.GOV, http://www.azdor.gov/portals/0/brochure/010.pdf (last updated Mar. 2014).
16 Gift Tax, IRS.GOV, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Gift-Tax (last visited Jan.
17 Frequently Asked Questions on Gift Taxes, IRS.GOV, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes (last updated Nov. 17, 2014).
18 Nancy Cross, supra note 1.