If a recently deceased loved one leaves an inheritance to you, you might wonder how this additional money will impact your income tax filings. In most situations, you must pay some type of tax on the money you inherit. Below, learn about a few common inheritance-related fees and how they are calculated.

3 Types of Taxes You May Experience With an Inheritance

1. Estate Taxes

The IRS imposes an estate tax on the value of a deceased person’s assets when that value exceeds their limit, which changes yearly. The 2020 estate tax only applies to estates valued over $11.58 million; the more an estate exceeds this amount, the higher the tax debt will be. However, the state that the deceased resided in may also impose a tax. The executor of the estate must pay these fees from the estate, so this is only your obligation if you are the executor. Estate taxes can be substantial, which means they could lower the amount of the inheritance any beneficiaries should receive.

2. Inheritance Taxes

Nebraska is one of seven states that applies an inheritance tax. Close relatives like parents, children, and siblings receive a fee of 1% on any inheritance with a value of over $40,000. Distant relations like aunts, uncles, nieces, and nephews must pay 13% of any amount over $15,000. All other heirs will pay 18% on values above $10,000.

3. Capital Gains Taxes

If you receive an inheritance of property and then sell it, you may face capital gains taxes. This is the difference between the value of the property and the final sale price. If the selling price is below value, you do not have to pay capital gains taxes on your tax filing. If you sell it for more than it is worth, the difference is subject to taxation.

A short-term capital gains tax applies to profits from the sale of an asset that you own for one year or less; the tax rate is your regular tax filing bracket. A long-term capital gains tax applies to profits from an asset that you own for more than one year. For 2020, single filers pay nothing if their income is between $0 and $40,000, 15% between $40,001 and $441,450, and 20% for $441,451 or more.

A tax preparation professional will help you understand your payment obligations when receiving an inheritance. PMC Tax Service LLC has been serving the Lincoln, NE, area since 1989. They offer tax filing preparation, as well as tax planning services. Whether you're an individual or business filer, they will help you find the most effective tax solutions. Call (402) 467-5529 to schedule an appointment. Visit them online for more information about their services.