4 things to avoid after receiving an inheritance
Plus, your inheritance receives a " stepped-up basis " to the date of the decedent's death as well. State and federal estate taxes might also come due. An estate won't owe any estate tax if its value is less than this. But 12 states and the District of Columbia also collect an estate tax at the state level as of If you inherit from a decedent who did not live or own bequeathed property in any of these states, the estate won't owe any state estate taxes, just as is the case with inheritance taxes in states that collect them.
Otherwise, the value of the estate must exceed the state's estate tax exemption before any state estate taxes will be owed. If the estate owes state estate taxes, these taxes must be paid before you can receive your inheritance. The amount that you receive will most likely already have been reduced by the taxes that were due. There are many misconceptions about taxes and inheritances. Consult with an estate planning attorney or an accountant long before your tax return is due if you're not sure if you'll have to pay taxes on inherited property.
The information contained in this article is not tax or legal advice and is not a substitute for such advice.
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By using The Balance, you accept our. Estate Planning Inheritor's Guide. By Julie Garber. The Bottom Line There are many misconceptions about taxes and inheritances.
What to Do With an Inheritance
Article Table of Contents Skip to section Expand. Taxes at the Federal Level. Young investors like Shivani are unlikely to have a large amount of wealth. The inheritance makes her wealthy, but comes with its own inflexibilities. She cannot sell the property in bits and pieces to meet her need for money. It is a bulky asset that has to be sold at one go to realise its worth.
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Or it could earn a small rental income. Its usefulness for Shivani lies in its ability to enable her to save more than she did earlier. By living in the inherited house, Shivani can save on rent and use the money to build assets. If she builds equity and debt assets with the savings, in a few years she will have a balanced portfolio that will be more accessible and flexible. For example, if she wants to provide for the education of her child, she may not be able to sell the house, but can liquidate the investments she makes out of the savings in rent.
Selling off the house to buy a new one might be a constraint unless the new property is of the same value. Taking on an EMI at this stage will reduce her ability to save and will further concentrate her wealth in a house.
She will also incur additional costs on stamp duties, registration, fees and costs, and interiors of the new house. Shivani should use her inheritance to augment her savings. She should take on other commitment once her finances are on a firmer footing. Disclaimer: The opinions expressed in this column are that of the writer.
The facts and opinions expressed here do not reflect the views of www.
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Read more on inheritance property. Click Here. Follow us on. Download et app. Become a member. I have nothing to save after paying EMIs, household expenses. How should I manage my financial concerns? Mail This Article.