Do we pay income taxes on inheritance?

A fellow caregiver asked...

my dad passed and left everything to my brother and I. we had to sell the house to payoff his debts and we split what was left. do we has to pay income taxes on it?? (what was left)

Expert Answer

Ah, an easy question! You do NOT have to pay income taxes on inheritances. Period. Inheritances are subject to federal estate taxes. However, for 20089, an inheritance of under $3.5 million was exempt from federal estate tax. And currently in 2010, there is no federal estate tax, though Congress will probably soon vote to return it, with an exemption of at least $3 million. Most states do not have estate taxes or inheritance taxes, but a few do. The the specific tax rules vary for each state that has estate/inheritance taxes.