State Tax Due on Inherited IRA Distribution?
My wife inherited a modest IRA from her father when he passed away the previous year. We took a decent sized one time distribution to help purchase a house, paying the necessary 30% Federal Income tax that was required on it, all fine and good. Since we live in Georgia, we have written a large check for our own GA state income tax accounting for that additional lump sum that gets included on the GA tax return for 2013. My question is, and it is probably wishful thinking, is GA state tax still due on this distribution when the original 401k contributions made by her deceased father when he spent his entire working career in FL, which of course has no state tax. There seems to be very little information on the state tax side online and I know each state can have their own tax rules so I would very much appreciate some help, many thanks in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2014-08-28 01:05
When her father passed, any remaining basis he had in his TIRA (Form 8606), would be inherited by your wife (her share of the basis) and she would then file her own 8606 to make some of her distributions tax free. Most states use the federal taxable amount for state taxable income determination. A few states have additional adjustments if there were no deductions on their state form, but I do not think any of them would reflect lack of a state income tax in the state where the original contributions were made. So I think any GA tax break would be limited to 8606 basis on the federal form that would flow to the state form.
Permalink Submitted by James Croshaw on Thu, 2014-08-28 13:38
Thanks for the prompt reply, very helpful, thank you 🙂