If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
$500,000 is a big inheritance. It could have a significant impact on your financial situation, depending on how it is managed and utilized. As you can see here, there are many complex, moving parts involving several financial disciplines.
Of the 2,500 Millennials around the world who shared their insights for this latest survey — including more than 200 in the U.S., and, again, each with minimum investable assets of $100,000 — a mere 13% counted the receipt of an inheritance or family money as contributing to their wealth.
Don't Assume You'll Get It
First of all, if you're expecting a large inheritance one day but have yet to receive the money, don't count on it. Things can change. Your relative or other benefactor might incur large medical or nursing home bills at the end of their life.
While state laws differ for inheritance taxes, an inheritance must exceed a certain threshold to be considered taxable. For federal estate taxes as of 2024, if the total estate is under $13.61 million for an individual or $27.22 million for a married couple, there's no need to worry about estate taxes.
According to the Federal Reserve data, on average, American households inherit $46,200. 1 However, this number is inflated by large amounts passed down in wealthy families. Here, we'll get into the numbers and explore how inherited wealth can impact your financial planning.
In most cases, an inheritance isn't subject to income taxes. The assets passed on in an investment or bank account aren't considered taxable income, nor is life insurance. However, you could pay income taxes on the assets in pre-tax accounts.
To turn $500,000 into $1,000,000, you need a sound investment strategy. Diversifying your investments across a mix of asset classes like stocks, bonds, and real estate can help.
You can deposit a large cash inheritance in a savings account, either through a check or direct wire to your bank. The bigger question is what you should do with it once it's deposited. While that is ultimately your decision, it helps to have a plan. The more prepared you are before you get the inheritance.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
You don't need to report a cash inheritance on your federal return. The IRS doesn't impose an inheritance tax. Only a handful of states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) have some kind of inheritance tax.
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
An inheritance tax is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary. There is no federal inheritance tax. Inherited assets may be taxed for residents of Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Many states assess an inheritance tax. That means that you, as the beneficiary, will have to pay taxes when you receive an inheritance. How much you'll be assessed depends on the state you live in, the size of your inheritance, the types of assets included, and your relationship with the deceased.
That said, an inheritance of $100,000 or more is generally considered large. This is a considerable sum of money, and receiving such a windfall can be intimidating, especially if you have limited experience managing excess funds.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
A $150,000 inheritance can buy you significant financial security, but it's not a winning Powerball ticket. It's not enough to splurge on a new home and luxury car or the kind of lifestyle upgrades that would draw attention. If you don't broadcast your inheritance, odds are good that you can keep it private.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
This means that when the beneficiary withdraws those monies from the accounts, the beneficiary will receive a 1099 from the company administering the plan and must report that income on their income tax return (and must pay income taxes on the sum).
Strategies to transfer wealth without a heavy tax burden include creating an irrevocable trust, engaging in annual gifting, forming a family limited partnership, or forming a generation-skipping transfer trust.