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Old 09-09-2009, 07:04 PM
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Inheritance tax question

My mom in Massachusets died in November of 2006. The will left everything in an even split between my brother and myself and 2% to my daughter to be held until she reaches legal age .My sister -in-law is the executor and the real property( home and vacation property ) is yet to be disolved . During 2007 we recieved several checks for cd's and IRA's that were part of the estate . When filling our 2008 taxes these were taxed to the amount of around 10K . Should we have been exempetd from paying taxes on this as it was part of the estate ??? And if so is there a way to file an amended return to get these funds returned ?? I have been unemployed since Januaury and could really use the funds if they are something that should not have been taxed . I have been told that all inheritance up to a $1M dollar amount should not have to be claimed is this correct ?



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Old 09-12-2009, 01:48 AM
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On the death of the IRA owner, in this case your Mother, the value of her IRA account would have been includable into her taxable estate for estate tax purposes and any payments from the IRA to you or your brother are subject to income taxes. This is based on the theory "that no income taxes were paid during the life of the original owner."

The periodic payments are taxed under the rules of § 72 for annuity payments, as modified by I.R.C. §408(d)(2). Distributions to other beneficiaries are taxed in the same manner as distributions to the original IRA owner. Thus to answer your question, "Should we have been exempted from paying taxes on this as it was part of the estate?", the answer is No! You would have to pay income taxes on the IRA distribution received from your Mother Estate.

Remember, the monies that are in the IRA have never been subject to any Income taxes and so these amount upon distribution to you would be taxed to you as ordinary income. The estate exemption that you are referring to is either to the Marital Exemption or By-Pass Trust. None of these exemptions are applicable in this case. Regretably, I think you are liable to pay taxes on these IRA distributions.

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