Inheritance - Is it taxable?

[cwucowboy]

What is the name of your state (only U.S. law)? Washington State and Overseas.

I'm currently stationed overseas and the property is in Washington state. As WA does not have a income tax I'm not too worried about it. My question is regarding Federal Income Tax.

Scenario

My mother passed away almost a year ago leaving a house that was assessed by the county at $269,000 at her passing to me and my brother. As I'm overseas we agreed on making him the Executor of the estate. We couldn't agree on terms for me to take over the property so we placed it up for sale. Despite the financial problems the country is facing we have received a fair offer in less than six weeks after being on market and is in the process of finalizing the sale. The offer is for $245,000. After which we have to deduct the real estate agents fees then divide the remainder between us. I'm estimating $100,000 each. I would like to take a small part of this and pay off credit card debt ($5000), car payments ($4000) and a TSP load - similar to a 401K ($4000). The rest I plan to put into a short term CD or similar until I return to the USA and use it as a downpayment on a house of my own.

{A}

Researching on the IRS website it appears that as long as the sale of the property ($245,000) is less than the FMV ($269,000) at the time of my mother's death, then we will not owe taxes.

1) Is this correct?

2) As the executor of the estate does my brother file a return based on the sale of the estate then I file one for the inheritance for my half of the value?

{B}

In the above scenario where I place a majority of the cash into a CD or other similar account then use a smaller portion to pay off old debts,

1) Do I owe taxes on the portion not placed in the CD?

2) Or is no taxes owed period and I am free to do with all of the funds as I please under inheritance clauses?

3) If I do owe taxes on the portion not placed into a CD, is the portion used to pay off the TSP (401K) loan tax exempt as it is a government funded/run retirement account or do I have to include that as part of Earned Income for tax purposes?

Thank you.

As I am a complete novice in anything to do with Inheritance, Tax and Real Estate I appreciate your assistance and patience. As I have had little credits over the past years I only have had to file an EZ return for the last 10 years. This is the most complicated issue I've had and unfortunately it's all been at once.

Michael

[LdiJ]

On the federal side of things, because you are selling the house for less than its fair market value, there will be no tax. If the house is the only thing in the estate (or there isn't much besides the house) then no estate tax return has to be filed.

It doesn't matter what you do with the money afterwards. Any interest earned on CD's etc. however, would be taxable income.

I am unfamiliar with WA state tax law, therefore you would need to consult a local professional there regarding whether or not there are any inheritances taxes for WA.