If you’ve inherited (or expect to inherit) a home, you’re not alone. Deciding what to do with the home can carry both emotional weight and financial consequences. Here, Rachael walks through a few key things to consider before deciding whether to move in, rent, or sell.
Transcript
If you have questions about inheritance taxes, you’re not alone. This is one of the most common questions we get. My goal today is to help you understand the big picture and not overwhelm you with rules.
I’m Rachael Bourke, a financial advisor with Hello Inheritance, where we help women navigate the financial and emotional side of inheriting wealth.
First, I have some good news. There is no federal inheritance tax. In most cases, simply receiving an inheritance does not mean you owe taxes on it. This includes cash, investments, and even real estate. But there are a few important nuances to be aware of.
The third one is the most commonly misunderstood, so make sure to stick around.
The first nuance to be aware of is state-level taxes. A small number of states still have inheritance or estate taxes, and even if you don’t live there, inheriting property located in one of those states could trigger tax consequences. important to work with an estate attorney when navigating this particular situation.
Secondly, very large estates may owe federal estate tax before assets are passed on, but that tax is paid by the estate, not the beneficiary, meaning you won’t have to pay those taxes out of pocket. Instead, they’ll be taken from the estate before it’s distributed to the beneficiaries.
For those who pass away in 2026, the estate tax only applies to estates of $15 million or more for a single person and $30 million or more for a married couple.
Finally, retirement accounts. This is the most common and perhaps the most misunderstood.
If you inherit a traditional IRA or 401k, the inheritance itself usually isn’t taxed, but any withdrawals you take are, and this is where people get tripped up. Even if something seems harmless, like moving the money into another investment account or savings account, the IRS treats this as a withdrawal, and the entire amount is counted as income. This could result in a range of unintended consequences. For example, you could be pushed into a higher tax bracket, causing you to owe more
for the year and walk away with much less than you originally inherited.
Additionally, if you’re on Medicare, increasing your income significantly may cause you to owe higher Medicare premiums. This is called IRMAA. We’ll have a full episode on this in the future.
Finally, if you withdraw a significant amount from the retirement account but do not withhold taxes, you may find you have a massive tax bill next tax season.
With inherited retirement accounts, how you move the money matters just as much as what you do with it.
Keep in mind that many beneficiaries of retirement accounts must deplete those accounts within 10 years. We’ll have a full episode on that in the future.
The bottom line is most people won’t owe tax just for inheriting, but what you inherit, how you take it, and where it’s located can change the outcome.
When in doubt, pause and get good advice before making any big moves.
Disclosures
This content is for educational purposes only and is not specific investment advice. Advisory services for Hello Inheritance are offered through Bourke Wealth Management. Please visit www.bourkewealth.com for important investor information.
Bourke Wealth Management is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Bourke Wealth Management and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Bourke Wealth Management unless a client service agreement is in place.
This commentary reflects the personal opinions, viewpoints and analyses of the Bourke Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by Bourke Wealth Management or performance returns of any Bourke Wealth Management client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Bourke Wealth Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.