Will I be taxed on my inheritance in Nevada?

There are two types of taxes possible on an inheritance, but they are rare. The two types are inheritance tax (sometimes called death taxes or estate taxes) and income tax.

Nevada does not have an inheritance tax. The federal government (IRS) may impose an inheritance tax is the value of the deceased person’s entire estate is over $5.5 million (as of 2018). Otherwise, no tax will be due. If there is a tax, the portion of tax that results from the property you inherit will usually be payable from your share. This is a complicated topic that requires the assistance of an attorney and tax accountant.

For income tax, this is usually an issue in three situations: inherited retirement accounts, real estate, and inherited businesses.

For real estate, the price paid plus the amount invested to improve the property equals the “basis” in the property. You only pay income tax on property you inherit if it is sold for more than the fair market value at the date of the deceased’s death. This is because you inherit at a “stepped up basis.” For example, if your mom purchased real estate for $50,000 and made $50,000 improvements, her basis is $100,000. At her death, the property is worth $200,000. You inherit it and the government treats you as having a basis of $200,000. If, six months after her death, you sell for $250,000, you have potential income tax on $50,000. Without stepped up basis, you would have tax on $150,000 (sale price of 250 minus your mom’s basis of 100). There are many exceptions to paying income tax on property, so you will want to work with an experienced attorney and tax accountant when selling inherited property.

You can potentially have income tax liability on joint tenancy property when one tenant passes away. If you own a home in joint tenancy with your mother, you inherit your mother 50% share when she does. Your mom’s share gets a stepped up basis, but your share does not. For example, assume you purchased the property for $100,000. You and your mom have a basis of $50,000 each. If the property is worth $200,000 at the time of her death, the stepped up basis on her share is $100,000. Your basis on your half is still $50,000, for a total basis of $150,000. If you sell for $200,000, you may owe income tax on $50,000. Again, this has exceptions; consult your attorney or tax accountant.

Trust property and property titled in community property get a “double step up” in basis, just like the first example.