Is Inheritance Taxable

Today TaxMama hears from Manny in NY has a question that comes up often. “I will be buying a house in NYC and my wife inherited six figures from her grandfather. We plan to use that money for the down payment. Is this inheritance tax free? Or will it be taxed on our 2007 tax return?”

Dear Manny,

Good news. The inheritance is not taxable to your wife – unless, of course, what she receives is an IRA or other retirement plan. If it is an IRA or retirement plan, please read this explanation .

Now about using her inheritance to buy a home – let me inject a word of caution to your wife.

Inheritances are separate property, even in community property states. I would advise her to keep that money separate, to the point of buying the house in her own name, allowing you to build up equity in as you make payments on the mortgage, or…on some other terms that you both find equitable.

If you truly love her, you will have her meet with her own, separate, but friendly, financial advisor. It is the prudent and logical thing to do. For a variety of reasons, including some that benefit you.

And remember, you’ll find answers to lots of questions about gifts and estates and other tax information, free. Where? At

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