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Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 1:43 pm
by Dad67op
My MIL's passing last year left my wife with an Orlando Florida house and furnishings that once sold have added $300k to her bank account.

It's unclear to me how to calculate the taxes due - can anyone advise?

Thanks!

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:21 pm
by prudent
What state are you in?

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:25 pm
by Lee_WSP
The personal goods value is added or should be accounted for via the estate tax.

Selling personal goods generally incurs no tax since the cost of goods sold is generally greater than the revenue. If they're collectibles, then they'd be taxed at the collectibles rate, i think its the same as gold, its some odd cap gains rate.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:31 pm
by Dad67op
Thanks for your responses - we live in Florida.

Do I need to add the $300k to our income for 2020? :shock:

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:32 pm
by Dude2
Dad67op wrote: Tue Sep 22, 2020 1:43 pm My MIL's passing last year left my wife with an Orlando Florida house and furnishings that once sold have added $300k to her bank account.

It's unclear to me how to calculate the taxes due - can anyone advise?

Thanks!
I think the simple answer is that, just like gifts (in concept), the recipient of the inheritance is not taxed on it. In other words, it isn't as if she suddenly made 300k in income for the year.

The more complicated answer involves the estate, but this is only relevant if the estate is worth more than 11 million or so.

I am no expert in any way, shape, or form, but I fear given the answers above so far that one is going to lose sight of the forest for the trees. Also, I think there are only 4 states that want a piece, and FL isn't one.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:35 pm
by Lee_WSP
Dad67op wrote: Tue Sep 22, 2020 2:31 pm Thanks for your responses - we live in Florida.

Do I need to add the $300k to our income for 2020? :shock:
https://www.irs.gov/publications/p544

If you had a capital gain, maybe. If its a inheritance/gift, see the section on inheritance/gifts.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:36 pm
by gwe67
What Prudent may be alluding to is that some states tax inheritance.

https://www.jrcinsurancegroup.com/state ... -tax-2020/

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:36 pm
by Dad67op
Thanks for the insights all.

i appreciate your help

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:38 pm
by aristotelian
I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:40 pm
by Lee_WSP
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:45 pm
by mptfan
Dad67op wrote: Tue Sep 22, 2020 2:31 pm Do I need to add the $300k to our income for 2020? :shock:
No.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 2:58 pm
by Watty
Dad67op wrote: Tue Sep 22, 2020 1:43 pm It's unclear to me how to calculate the taxes due - can anyone advise?
One thing to do is to look up the safe harbour rules to make sure that enough taxes are withheld based on your income last year so that there will not be a penalty if you do not have enough taxes withheld in 2020.

I would suspect that some of the details on the taxes will depend on if the estate sold the house and furniture or if the house and furniture was transferred to your wife then she sold it.

I am not a tax pro but what I would suggest doing is to have your taxes professionally done this year.

I normally do my own taxes with tax software but about every 20 years or so there will be something that is more complex that year so I will get my taxes done by a professional. When I have used a professional to do my taxes they always found something about the special situation that saved me enough to more or less cover their fee.

Whoever is administering your MILs estate will likely need to do a final tax return for the estate too if that was not all settled in 2019. When we were settling my parents estate the accountant who did the financial tax return for the estate made up a folder for each of the kids that detailed what numbers needed to be entered on the kids tax returns and which forms to include with the kids tax returns. As I recall there were actually some expenses from the sale of their house that we got to deduct on our taxes but I don't remember the details but it might have been related to the things that needed to be done to get the house ready to sell and a capital loss after paying things like the real estate agents commission. If you are having an accountant do the final tax return for your MILs estate this year then you may want to have them do your taxes too.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 3:20 pm
by aristotelian
Lee_WSP wrote: Tue Sep 22, 2020 2:40 pm
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.
Wouldn't that be theoretically the same?

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 3:27 pm
by prudent
My understanding is if the estate is under $11 million, there is no federal estate tax.
In Florida there is no inheritance tax.

So what could be taxed? Potentially a change in value from the date of death until date of sale. This is an easy calculation if there are financial assets. If it's a house/personal property only, I suppose you could hire an appraiser to give you a value for the house as of the date of death, then determine if there was a gain when it was sold. Given it's only been a year, I wouldn't be surprised if the expenses of the sale would cancel out any gain.

Seems very unlikely any of the personal property/household goods would have increased in value before sale.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 3:34 pm
by Gill
It doesn't appear you have received a complete or accurate answer to your question. Who sold the property? Was it the estate or did your wife inherit the house and furnishings and then sell it herself? If the estate sold it the estate would normally report it on the estate's income tax return and there would be nothing to report for you unless the estate issued you a Schedule K-1 telling you to report certain estate income on your personal return.

If, however, your wife inherited the house it would have a basis equal to the fair market value on date of death. If sold within a reasonable time the proceeds would equal FMV and there would be no gain or loss. That would apply to the furnishings as well. You would report this on your 1040 showing no gain or loss.

In any case, I'm sure you don't have to worry about additional income as the result of this transaction.

Gill

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 4:03 pm
by Lee_WSP
aristotelian wrote: Tue Sep 22, 2020 3:20 pm
Lee_WSP wrote: Tue Sep 22, 2020 2:40 pm
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.
Wouldn't that be theoretically the same?
Furniture doesn't usually appreciate. Certainly not typically within a year.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 4:08 pm
by aristotelian
Lee_WSP wrote: Tue Sep 22, 2020 4:03 pm
aristotelian wrote: Tue Sep 22, 2020 3:20 pm
Lee_WSP wrote: Tue Sep 22, 2020 2:40 pm
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.
Wouldn't that be theoretically the same?
Furniture doesn't usually appreciate. Certainly not typically within a year.
They would owe tax on gains. If it did not appreciate then no tax.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 4:47 pm
by MarkNYC
Lee_WSP wrote: Tue Sep 22, 2020 2:40 pm
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.
I believe the OP is asking about how to report $300K proceeds from the sale of "house and furnishings." Unlikely there was $300K proceeds just from sale of furniture.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 5:57 pm
by trueblueky
Gill wrote: Tue Sep 22, 2020 3:34 pm It doesn't appear you have received a complete or accurate answer to your question. Who sold the property? Was it the estate or did your wife inherit the house and furnishings and then sell it herself? If the estate sold it the estate would normally report it on the estate's income tax return and there would be nothing to report for you unless the estate issued you a Schedule K-1 telling you to report certain estate income on your personal return.

If, however, your wife inherited the house it would have a basis equal to the fair market value on date of death. If sold within a reasonable time the proceeds would equal FMV and there would be no gain or loss. That would apply to the furnishings as well. You would report this on your 1040 showing no gain or loss.

In any case, I'm sure you don't have to worry about additional income as the result of this transaction.

Gill
^ this

The basis of the house is its fair market value on the day of death. Any gain above that is long term capital gain. Because there are expenses in selling real estate, you are unlikely to have a gain on an inherited house sold relatively close to the date of death.

The furniture's basis is its fair market value on the day of death. You might want to have that appraised, and then donate it. Save time and trouble vs. trying to sell.

Added: it is not unusual in central Florida to sell a house with the furnishings. That's another option.

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 7:15 pm
by Lee_WSP
MarkNYC wrote: Tue Sep 22, 2020 4:47 pm
Lee_WSP wrote: Tue Sep 22, 2020 2:40 pm
aristotelian wrote: Tue Sep 22, 2020 2:38 pm I believe you would owe tax on any gains between the date of owners death and when the house was sold. There is no line on 1040 for inheritance. The estate may owe tax.
I believe that is correct, however, OP is asking about the proceeds from the sale of furniture.
I believe the OP is asking about how to report $300K proceeds from the sale of "house and furnishings." Unlikely there was $300K proceeds just from sale of furniture.
:oops:

Re: Tax Question regarding wife's inheritance

Posted: Tue Sep 22, 2020 9:13 pm
by Dad67op
Thanks again everyone