My mother in law passed away in April. I am receiving 25,000 from her estate. Do I owe income tax on this $?

Question

Her estate was less than $1,000,000.

Answer 1

You do not pay taxes on an inheritance at the Federal level unless the inheritance is an IRA or other tax-preferenced account.  If it is an IRA then you pay income taxes on the distributions when you take them.  See IRS Pub 590 for information on when you must take distributions from an inherited IRA.

Some States do still have inheritance taxes and if you live in one of those States you must pay the State inheritance tax.  At least one State (LA) has a "transfer tax" on payouts from an estate so if you or your MIL lived in such a State, you would have to pay that transfer tax.

Answer 2

No, not usually but it depends on  the state that you are in contact an accountant which usually knows the state guidelines.

Answer 3

If your inheritance was never taxed, as in the case of a 401k or traditional IRA, you will owe income tax on this money.

If your inheritance does not fall into the above category, it is tax-free to you.

The size of her estate is not relevant to your tax situation.