Inheritance and Taxes: What You Actually Owe Depends on What You Inherited
"Do I have to pay taxes on my inheritance?" is one of the most common questions we hear from families in the Metro Detroit area. The honest answer is: it depends on what you inherited, not just that you inherited it. Here at Real Time Home Buyers Metro Detroit, we've walked alongside plenty of local heirs figuring this out, so we put together a quick breakdown by asset type.
Cash and Bank Accounts
If you inherit cash sitting in a savings or checking account, that money itself isn't taxable income to you. The IRS doesn't treat an inheritance as earnings. The only wrinkle: once the money is in your account, any interest it earns from that point forward is taxable, just like interest on any other account you own.
A House or Other Real Estate
Inheriting a home doesn't create an immediate tax bill either. What matters is the property's value on the date of the original owner's passing — this becomes your "stepped-up" basis. If you turn around and sell close to that value, there's often little to no taxable gain. Taxes only come into play if the home sits for a while, appreciates, and you sell for meaningfully more than that stepped-up value.
This is one of the biggest reasons families choose to sell an inherited property sooner rather than later. Beyond taxes, an empty or inherited house still comes with insurance costs, utilities, property taxes, and maintenance — all of which add up the longer it sits unsold, especially if multiple heirs are trying to agree on what to do with it.
Stocks and Investment Accounts
Like real estate, inherited stocks and mutual funds get that same stepped-up basis. If you sell shortly after inheriting them, there's typically minimal tax owed. Hold onto them and they grow further, though, and you could owe capital gains tax on that additional growth when you eventually sell.
Retirement Accounts (401(k)s and IRAs)
This is where the rules change. Unlike a house or a brokerage account, inherited traditional retirement accounts don't get a step-up in basis, and withdrawals are generally taxed as ordinary income. Most non-spouse beneficiaries also have a set window of time in which they need to withdraw the funds, so it's worth talking to a tax professional early so you're not caught off guard.
The Bottom Line for Metro Detroit Families
Michigan doesn't impose its own inheritance or estate tax, so for most local families, the biggest tax questions revolve around what happens after you inherit — particularly with a house that sits unsold for months while it accumulates carrying costs.
If you've inherited a property and want to skip the repairs, showings, and drawn-out closing process, Real Time Home Buyers Metro Detroit buys houses as-is throughout the area and can often close on your timeline. Call us at 248-509-5398 to talk through your situation — there's no obligation, and we're happy to help you think through your options either way.
This post is meant as general information, not tax or legal advice. Every inheritance situation is different, so it's a good idea to loop in a CPA or estate attorney for guidance specific to you.
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