My father recently died and left me an inheritance.  Do I owe any taxes on it?

Generally speaking, inherited assets are not taxed.  Federal and state estate tax laws require any taxes owed to be paid by the estate before distributions are made to the heirs.  In addition, South Carolina does not have an inheritance tax, so the inheritance you receive from your father will be tax free.  One exception to this would be inherited retirement plan assets.

As you already may know, you must pay income tax on distributions you receive from your own retirement plan.  The same rule holds true for an inherited retirement plan, due to the fact that no income tax has been paid yet on these assets.  If your father listed you as a designated beneficiary on his retirement plan account, you have an option to stretch out these payments over your lifetime, thus keeping the tax bill low as well.  Another exception could possibly be capital gains tax.

Under current estate tax law, assets owned by the deceased are valued as of the date of death.  This value becomes the heirs' tax basis.  If the asset is sold for more than its date-of-death value, the gain may be subject to long-term capital gains tax.  To determine if you owe either of these two taxes, you may need to consult your CPA.

Don't fret, however, if you do end up paying tax.  Until taxes are 100 percent of income, you will still come out with cash in your pocket at the end of the day, and for that you can thank your father and your Heavenly Father for the amount you get to keep.