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Preserve Your Legacy

Estate Planning | Elder Law | Special Needs Planning



After the death of a loved one, there is much concern about paying taxes. One of the first questions beneficiaries ask is, “Do I have to pay taxes on my inheritance?”

The good news for beneficiaries is that all inheritance and estate taxes will be paid from the estate before you receive your inheritance. Therefore, you do not have to pay taxes on your inheritance; they’ve already been paid before you receive it.

However, if the assets appreciate in value from the date of death of a loved one to the date you sell them, you may owe capital gains taxes on the sale, depending on your income and current law. For example, if you inherit a stock portfolio worth $50,000 at your loved one’s date of death and you sell the stocks and receive $60,000, you will owe capital gains on $10,000 ($60,000 – $50,000 = $10,000.) The amount of tax due will be based upon the current rate of capital gains and how long you owned the asset (i.e. short term or long term.)

Another good thing about inheriting assets is that you do get a full step up in tax basis to the date of death value of the assets. Consider the example we used above.

If your loved one purchased the stock portfolio for $30,000 and gave the stocks to you during his or her lifetime, you would receive the transferred basis of $30,000. So, when you sold them for $60,000, you would owe taxes on the increase in value of $30,000 ($60,000 – $30,000 = $30,000.)

In contrast, when you receive the assets at your loved one’s death, you only owe taxes on the gain from the date of death until the date of sale. If the long term capital gains rate is 15%, inheriting the assets instead of receiving them as a gift, means paying $1,500 in taxes as opposed to paying $4,500 in capital gains taxes ($10,000 x 15% = $1,500 versus $30,000 x 15% = $4,500.)

For specific advice on your inheritance and taxes, consult with a qualified