Asked 11/17/2010
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Pay NJ state and federal income taxes as beneficiary on an annuity and IRA Godfather died left her as beneficiary of an annuity and an IRA. I understand in NJ she will need to pay 15% inheritance tax. Will she also have to pay state and federal income taxes and if so based on what amount? The death benefit or the difference in the original purchase price and the finl value? |
Answer 1/1 - Submitted 11/17/2010
When you inherit an annuity, you also inherit the basis (US federal tax law). So if the original owner paid $50,000 for the annuity, and the beneficiary is now receiving $57,000, then the income tax is paid on $7,000.
I don't dare comment on NJ considerations. Though the state generally follows the federal handling, I haven't researched annuities on an NJ return yet.
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