Is the money received from the sale of inherited property considered
taxable income?
To determine if the sale of inherited property is taxable, you must first
determine your basis in the property. The basis of inherited property is generally
one of the following:
(1) The fair market value (FMV) of the property on the date of the decedent's
death.
(2) The FMV of the property on the alternate valuation date if the executor
of the estate chooses to use alternate valuation. See Form 706 (PDF), United States Estate (and Generation-Skipping Transfer) Tax
Return.
(3) The special use valuation for estate tax purposes of qualified real
property used for farming purposes or in a trade or business other than farming.
However, if an interest in such property is disposed of or ceases to be used
in a qualified use during the 10 year period following the decedent's death,
additional estate tax is imposed. If the qualified heir elects to pay interest
on the additional estate tax, the adjusted basis of the property will be deemed
to have been increased, immediately before disposition, by an amount equal
to the excess of its fair market value on the date of the decedent's death
over its special use value. See Form 706 (PDF), U.S.
Estate (and Generation-Skipping Transfer) Tax Return and section 2032A
of Internal Revenue Code.
(4) If an election is made to exclude a portion of the value of land from
a decedent's gross estate section 2031 (c) (regarding the transfer of qualified
conservation easement), the decedent's adjusted basis in the land to the extent
the value of the land was excluded from the decedent's gross estate under
2031(c) by reason of the transfer of a qualified conservation easement plus
the fair market value of the land to the extent the value of the land was
included in the gross estate. For more information on qualified conservation
easement see the Form 706 Instructions, U. S. Estate
(and Generation-Skipping Transfer) Tax Return and section 2031(c) of
the Internal Revenue Code.
If you or your spouse gave the property to the descendent within one year
of their death, see Publication 551, Basis of Assets.
Report the sale on Form 1040, Schedule D (PDF), Capital
Gain and Losses. If you sell the property for more than your basis, you
have a taxable gain. For information on how to report the sale on Schedule
D, please see Publication 550, Investment Income and Expenses.
Are proceeds paid under a life insurance contract taxable and do
they have to be reported as income?
Generally, if you receive the proceeds under a life insurance contract
because of the death of the insured person the benefits are not taxable income
and do not have to be reported. Any interest you receive would be taxable
and would need to be reported just like any other interest received.
However, if the policy was transferred to you for valuable consideration,
the exclusion for the proceeds is limited to the sum of the consideration
you paid, additional premiums you paid, and certain other amounts. There are
some exceptions to this rule. For additional information, call 1 800-829-1040.
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