Investment Question....

[MayMom]

I recently inherited a CD from my aunt. The CD is to be split between my mom and me. We are cashing it on Monday. It has made $1200.00 in interest and has been at the bank several years. How much tax will I pay on this and how will I split the tax with my mom? Do I just pay the interest income or the whole amount that is split up?

 

[ducklite]

I recently inherited a CD from my aunt. The CD is to be split between my mom and me. We are cashing it on Monday. It has made $1200.00 in interest and has been at the bank several years. How much tax will I pay on this and how will I split the tax with my mom? Do I just pay the interest income or the whole amount that is split up?

Best to talk to your tax advisor, but generally you'd pay tax on your share (half in this case) on any interest income or dividend derived from a co-owned investment account. Where it gets iffy is any inheritance tax, again, that's something you really need to talk to a tax person about. If that's the only thing you inherited you *probably* don't have any inheritence tax, but I'm NOT an attorney or tax advisor.

Anne

 

[dvcgirl]

I'd speak with a CPA who specializes in Estate Taxes. There are still about a dozen states or so who impose an Inheritance Tax. And Federal government imposes an Estate Tax on an estate worth more than $675,000.

 

[MayMom]

Heavens - I wish it were that much - nope, just a simple CD for a little bit of money!

 

[CHJAN]

I am an accountant - and can answer your question correctly - the interest accrued before your aunts death is actually taxable on your aunts final tax return. The interest accrued on the CD after her death would be taxable to you. Only the interest is taxable, not the principal, that is tax free as inherited property. I am assuming the CD was a POD (payable on death). And FYI and the taxable estate is now up to $1,500,000, hasn't been $675,000 since 2001, thank goodness!!

 

[dvcgirl]

Wow...I thought it wasn't going up 1.5 million for another 5 years. That is a very good thing indeed. I think I'm thinking of that other repealing of the estate tax in 2010. But I guess that's not finalized either.

It's interesting to me that they have finally increased the level at which Estates are taxed. It would seem to be sort of useless for most folks because estates left to children/kin are forecast to go down dramatically as BabyBoomers will need every penny to fund their own retirements...

 

[MayMom]

CHJAN - Thank you so much - one other ? - how do we split the tax? Does only one of us pay the tax on a return and the other person pay extra money when cashing the CD? That isn't very clear, but who will list the interest income on their tax return? Thanks so much!

 

[CHJAN]

You should only have to claim the interest that has accumulated since the date of your aunt's death. The interest that accumulated on the CD before your aunt's death is claimed on your aunt's final return.

Is the interest on the CD being reported in your aunt's social security number? - If so then the portion accumulated since her death is easy - you claim half, your mother claims half. If the interest is reported in your social security number only, then it is a bit more complicated but here goes! - You still claim the whole amount, then on the next line of the Schedule B (that is where interest is reported on your tax return) you subtract half and the description is "nominee interest". You are then suppose to also issue the other person, your mother, a 1099INT document for her portion. The bank will normally issue a 1099INT document in the name and social security number of the owner of the "interest".

Make sense? Things might become clearer once the bank issues their end of year tax statements.

 

[MayMom]

Great - I think I get it! She also left me a bond from 1955 It has $8000.00 in interest and actually stopped ecruing interest in 1995. I will have to cash it next year and I know I will pay a ton of tax on it! Like Scarlett O' Hara - I'll worry about that tomorrow!

 

[ducklite]

CHJAN - Thank you so much - one other ? - how do we split the tax? Does only one of us pay the tax on a return and the other person pay extra money when cashing the CD? That isn't very clear, but who will list the interest income on their tax return? Thanks so much!

If you are splitting the bond 50/50 you'll each pay 50% of all costs.

Anne