Gifts and inheritance | FTB.ca.gov (2024)

FAQs

Is inheritance subject to gift tax? ›

Whether your assets become gifts or inheritance, your heirs usually face no tax liability on them: Any gift taxes or estate taxes due are typically your or your estate's liabilities. However, if you gift appreciated assets during your lifetime, those assets' original cost basis transfers with the gifts.

Economically there is no difference between the two. And as a practical matter, even inheritance taxes are generally paid by the executor of the estate before assets are distributed to beneficiaries.

If you received a gift or inheritance, do not include it in your income.

In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.

Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2024, the first $13,610,000 of an estate is exempt from taxes, up from $12,920,000 in 2023. Estate taxes are based on the size of the estate.

You can give an inheritance in the form of money, real estate, personal items, or a combination of your assets. Keep in mind, if you sell an asset for less than its value, reduce interest, or charge no interest, this may also be considered a gift.

A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift.

The federal estate tax applies to the transfer of property at death. The gift tax applies to transfers made while a person is living.

Which gifts are exempt from inheritance tax? ›

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

A federal tax called the gift tax is assessed on transfers of cash or property valued above a certain threshold. Gift tax is paid by the giver of money or assets, not the receiver.

If you don't file the gift tax return as you should, you could be responsible for the amount of gift tax due as well as 5% of the amount of that gift for every month that the return is past due.

Can the IRS take inheritance money? Yes, the IRS can take inheritance money for unpaid taxes.

A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it.

Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.

Cash received as an inheritance isn't taxable, according to the IRS. But, if the cash you received later generates further income–for example, if you have it in an interest-bearing account–subsequent earnings may be considered taxable income.

The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The 2023 annual gift tax exclusion was $17,000, and the 2024 annual gift tax exclusion is $18,000.