Gifts & Inheritances
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Are gifts, bequests, or inheritances taxable?
Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rentals, that income is taxable to you. For additional information, refer to Publication 17 (PDF), Your Federal Income Tax, Chapter 13. If you inherit an Individual Retirement Arrangement (IRA) or proceeds from a retirement (pension) plan, special rules apply. Refer to Publication 590 (PDF), Individual Retirement Arrangements (IRAs), or Publication 575 (PDF), Pension and Annuity Income, for further information.
References: Is the money received from the sale of inherited property considered taxable income?
To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of inherited property is generally one of the following:
The fair market value (FMV) of the property on the date of the decedent's death.
The FMV of the property on the alternate valuation date if the executor of the estate chooses to use alternate valuation. See Form 706 (PDF), United States Estate Tax Return.
The special use valuation for estate tax purposes of qualified real property used for farming purposes or in a trade or business other than farming. However, if an interest in such property is disposed of or ceases to be used in a qualified use during the 10 year period following the decedent's death, additional estate tax is imposed. If the qualified heir elects to pay interest on the additional estate tax, the adjusted basis of the property will be deemed to have been increased, immediately before disposition, by an amount equal to the excess of its fair market value on the date of the decedent's death over its special use value. Form 706 (PDF), U.S. Estate Tax Return and section 2032A of Internal Revenue Code.
If an election is made to exclude a portion of the value of land from a decedent's gross estate section 2031 (c) (regarding the transfer of qualified conservation easement), the decedent's adjusted basis in the land to the extent the value of the land was excluded from the decedent's gross estate under 2031(c) by reason of the transfer of a qualified conservation easement plus the fair market value of the land to the extent the value of the land was included in the gross estate. For more information on qualified conservation easement see the Instructions for Form 706, U. S. Estate Tax Returnand section 2031 (c) of the Internal Revenue Code.
If you or your spouse gave the property to the descendent within one year of their death, see Publication 551 (PDF), Basis of Assets.
Report the sale on Form 1040, Schedule D (PDF), Capital Gain and Losses. If you sell the property for more than your basis, you have a taxable gain. For information on how to report the sale on Schedule D, please see Publication 550 (PDF), Investment Income and Expenses.
References:
Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home
|
