IRS Inheritance Tax Information

The federal government, or the IRS, does not impose or collect an inheritance tax. The IRS does collect an estate tax, but that tax does not apply to individuals who receive an inheritance. If you receive an inheritance, you only need to worry about state taxes, not federal taxes.

Estate Tax

The IRS, collects an estate tax on large estates. Because this tax is paid by the estate before you even receive your inheritance, you do not need to worry about this tax.

State Inheritance Taxes

Some states do collect an inheritance tax. You need to check the laws of your state to determine whether you must pay an inheritance tax.

Gift Taxes

While the IRS does not collect an inheritance tax, the IRS does collect a gift tax if the gift is large enough. For 2009, a gift tax might apply if you receive a gift worth more than $13,000.

Inheritance versus Gift

An inheritance is property received from a deceased person. A gift is property received from a person who is alive.

Life Insurance

Some people confuse life insurance proceeds (i.e., the money you collect as the beneficiary on a life insurance policy) as an inheritance. Life insurance proceeds, however, are not an inheritance, and are not taxed under either state or federal law.

References

• IRS Article About Estate and Gift Taxes