2010 inherited asset tax
I know there may not be a complete answer to this problem because of congress delay in passing an estate tax bill, but I am trying to get a handle on my possible tax liability.
The good news; My wife is in the process of receiving 1/7 of her Mother’s estate. She will receive about $125,000 distributed as follows:
1. $30,000 in a brokerage account (stocks and bonds)
2. $10.000 in a Trad. IRA
3. $15,000 from insurance
4. $35,000 from annuties
5. $30,000 from a trust holding her house and some annuities
6. $5000 from a bank CD
The bad news: I have no idea as to our tax liability. I know that the $40,000 in the brokerage and TIRA are dependent on the cost basis (TBD), but are the other items inherited income tax free or will there be taxes on them also?
Do we have to hold the stocks for 12 months to get the long term capital gains tax rate or do we inherit her date of purchase rather than date of death?
Thanks for any guidance you can provide.Best wishes ALP
Permalink Submitted by Alan Spross on Mon, 2010-04-12 22:50
You are correct that Congress has left the entire situation in limbo and there is no telling what they will do from here. But several of these assets would not get a basis adjustment even under the former rules. That includes the TIRA and the annuities. Life insurance is tax free and the CD will have no gains or losses, so these assets are handled the same under the former and present rules.
The annuity distributions will be taxed in the same manner as if your mother in law distributed the funds, ie the earnings will be taxable and the original investment is recovered tax free. You therefore need to determine the investment amount for the annuities. The TIRA is generally fully taxable unless she made non deductible contributions. Those would be shown on Form 8606.
The main questions therefore relate to the house and the brokerage account, as basis for those are dependent on what the law happens to end up being for 2010.
Permalink Submitted by al peterson on Tue, 2010-04-13 05:08
Alan, Thanks for your prompt and lucid reply. That narrows my tax liability somewhat while I wait for congressional ACTION. Best wishes, ALP