Inheritance Funds

Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property.  However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. You will have to include the interest income from inherited cash and dividends on inherited stocks or mutual funds in your reported income. For example:

• Any gains when you sell inherited investments or property are generally taxable, but you can usually also claim losses on these sales.
• State taxes on inheritances vary; check your state's department of revenue, treasury or taxation for details

Do I need to report a cash inheritance? 

@Bd0bransky Thanks for the question!!

If you received cash from the estate, with nothing else happening (like, it was cash under the mattress, or from a checking account), that is not taxable income and is not reported.

However, if the estate sold investments, or cashed out an IRA, in order to distribute the proceeds to the heirs, then those investments or IRA withdrawal is taxed according to the rules for any normal investment sales or IRA withdrawals.  The estate could pay the tax, but usually doesn't since estate tax rates are higher than personal tax rates and you would net less in the end if the estate paid the tax.  If the estate sold investments or cashed out an IRA and is passing the income and the tax on to you, the estate will give you a K-1 statement that you report on your tax return.  (Investments held by the estate usually result in little or no taxable income when they are sold, unless they are held for a while and gain in value after the death and before being sold, but traditional IRA cash outs are always taxable because no one paid tax on the original contributions.)

You need to check with the estate administrator if you have any questions.