Which state's inheritance tax laws do we follow?

Dstuder asked...

My mother-in-law passed away this summer in Ohio. Her estate was less than $100,000 and each sibling received an inheritance check of $26,700.

We live in Tennessee, do I have to show this as income on my 2009 income tax and pay taxes on it? Ohio doesn't have an inheritance tax, only an estate tax on estates over $300,000+, but Tennessee has an inheritance tax.

What state do I follow and do I have to claim it as income?

Expert Answer

You do not have to pay state inheritance tax or state income tax. Your mother lived in Ohio, so that state determines whether any inheritance tax must be paid. Under Ohio law, her estate was not subject to inheritance tax. Tennessee law, that state of your residence, has no application to your mother's estate.

You do not have to pay income tax (federal or state) on your inheritance. Inheritances are not subject to income tax. [Of course, there are exceptions, such as money left in an IRA that was not taxed before.] You have inherited the money free and clear.