I just inherited $25,000 from a grandparent. Do you pay normal taxes on this? Shoud I hold a portion for taxes

Answer 1

There are no Federal taxes on an inheritance. Any estate taxes were paid by the estate. The money is tax-free to you at the Federal level. There is an exception if you inherited an IRA. You would pay tax on that when you withdrew the money from the account. But if you were handed an check by the executor, there will be no Federal tax due. (If she had an IRA and the estate liquidated it the estate would have paid the tax and you would not have to.)

HOWEVER, a few states DO still have an inheritance tax and although that is often paid by the estate for you you'll have to check with the executor of the estate to see if any were paid. Without knowing your state it's not possible to say if there will be any state tax due.

Answer 2

It's doubtful that your grandparent died on Monday and the executor gave you the money on Tuesday. If the money earned interest between the time your relative died and you received the money, the interest income belongs to the estate. The estate *may* pass the income through to you. If this happens, you will receive a 1041 schedule k-1 showing your share of the interest income.

Answer 3

If the money is from a CD, bank account, or cash, it's nontaxable and is not reported on the Federal return. If the money is from an IRA or interest earned on a deferred annuity, it would be taxable on the Federal return.