- The IRS, collects an estate tax on large estates. Because this tax is paid by the estate before you even receive your inheritance, you do not need to worry about this tax.
State Inheritance Taxes
- Some states do collect an inheritance tax. You need to check the laws of your state to determine whether you must pay an inheritance tax.
- While the IRS does not collect an inheritance tax, the IRS does collect a gift tax if the gift is large enough. For 2009, a gift tax might apply if you receive a gift worth more than $13,000.
Inheritance versus Gift
- An inheritance is property received from a deceased person. A gift is property received from a person who is alive.
- Some people confuse life insurance proceeds (i.e., the money you collect as the beneficiary on a life insurance policy) as an inheritance. Life insurance proceeds, however, are not an inheritance, and are not taxed under either state or federal law.