The answer to your question would be that it depends. A CPA or the IRS would provide the best answer for your particular situation.
Inheritance money will generally not create an income tax. Therefore it would not affect your eligibility to receive Social Security Benefits (SSB) or Social Security Disability (SSD). However, it might affect eligibility for Supplemental Security Income (SSI), because to be eligible for the monthly SSI benefit, the beneficiary must not have assets that exceed $2,000 for one person or $3,000 for married couples. This asset determination does not include the value of the home and some personal belongings, such as one car.
However, if you inherit property, and income is generated from the inherited asset or assets are removed from within an inherited retirement account, that income is taxable. Moreover, if you sell the property at price more than the cost basis, then you pay the taxes on the profit. This income can increase your Modified Adjusted Gross Income (MAGI), which consists of adjusted gross income + nontaxable interest + ½ social security benefits.
Currently, if you file your tax return as a single or head of household and your MAGI is:
• between 25,000 and 34,000, you may have to pay income tax on up to 50 percent of your SSB
• more than 34,000, up to 85 percent of your benefits may be taxable.
If you file your tax return as married filing jointly and your MAGI is:
• between 32,000 and 44,000, you may have to pay income tax on up to 50 percent of your SSB
• more than 44,000, up to 85 percent of your benefits may be taxable.
Those that are married and file separately will likely pay income taxes on up to 85% of benefits. Therefore, the income generated from your inheritance might make your social security benefit taxable.
This answer is provided as general information only and provided by Master’s students pursuing a degree in Personal Financial Planning at Texas Tech University. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or Certified Financial PlannerTM as to your unique financial situation.
It would be best to call the IRS. Their operators are really well trained to give correct answers. I believe the inheritance itself is not unless you sell something and have to report a capital gain or, if an EE Bond, income tax.
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.