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Inheritance income affect ACA subsidy?
Old 12-06-2014, 07:31 PM   #1
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Inheritance income affect ACA subsidy?

In December 2013 my wife and I bought a high deductible ($6000/each, $12,700 family) PPO plan on healthcare.gov. We have had private health insurance since 1999. In 2014 we qualified for some subsidy based on what I expected our 2014 income to be.

My mother passed away in 2014 (my father passed away some years ago). After her house was sold her estate was settled and divided among us 4 siblings. Fortunately, we do not have taxes to pay on this income, but I am wondering if this inheritance income is counted for purposes of the ACA subsidy? I have searched the internet and not found the answer. I have also read the following, but it doesn't answer my case either:

http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

If it turns out the unexpected income for 2014 does count then I will have to pay back the 2014 subsidy. Also, maybe it will eliminate the 2015 subsidy if they use 2014 income to calculate it.

Does anyone know about this case? Thank you.
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Old 12-06-2014, 08:21 PM   #2
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Are you getting a K-1? Not sure anything else matters. But I'm no expert.
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Old 12-06-2014, 08:26 PM   #3
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I don't believe inheritance counts as income. Neither does a gift under the exclusion. In any case, it's the estate that has to pay any tax
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Old 12-06-2014, 08:29 PM   #4
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When my Mom passed her house was appraised. That became the inherited value (cost basis) of the house. We sold the house for close to the appraised value and therefore did not have a capital gain on the house. This money did not affect my income.

I hung onto the stocks so my income was raised by the dividends I received from the stocks. If I had sold the stocks the cost basis of the stocks would have been the value of the stocks on the date of her death. I would have incurred either a gain or a loss depending on the value of the stocks on the date I sold them. Cost bases - price of stock on date of sale.

I hope this helps.
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Old 12-06-2014, 08:30 PM   #5
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Inheritance isn't income. Even better, any assets you get have a stepped up basis to be the fair market value when you inherit them, so if you sell them right away, there is probably little or no income generated. Perhaps there are some exceptions I'm not aware of.

If you inherit an IRA or 401K, you may be required to take a minimum distribution (RMD) this year, and will certainly next year, so that would be income. If you cash it all out right away, that's income.
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Old 12-06-2014, 08:31 PM   #6
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PS - I forgot to say that I am sorry for your loss.
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Old 12-06-2014, 08:56 PM   #7
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There are some timebombs you need to be aware of.

One is deferred annuities. No step up on basis. It can cause some unintended income. There may be ways to defer or spread it out, but it could cause some ACA eligibility pain. Another reason to be wary of annuities.

But I don't think the OP mentioned this issue.
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Old 12-06-2014, 10:23 PM   #8
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Quote:
Originally Posted by audreyh1 View Post
I don't believe inheritance counts as income. Neither does a gift under the exclusion. In any case, it's the estate that has to pay any tax
+1 The only things that count are things that are counted in AGI on your tax return and a few other adjustments (FEIC, tax-exempt income, tax-exempt SS and a couple other things I can't recall offhand. But neither an inheritance nor a gift received would be considered income.
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Old 12-07-2014, 12:51 AM   #9
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Thank you to everyone. It sounds like this one time inheritance income this year from the sale of the house and the division of the proceeds among us siblings will not affect my income that ACA uses to determine subsidy. Fingers crossed.

My sister is the executor and I mentioned to her about the K-1. We had not heard of it. She has someone doing her taxes this year and taking care of this stuff so she will check with him.
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Old 12-07-2014, 12:51 AM   #10
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PS - I forgot to say that I am sorry for your loss.
Thank you very much, Helen.
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Old 12-07-2014, 07:00 AM   #11
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Also, maybe it will eliminate the 2015 subsidy if they use 2014 income to calculate it.
YOU (not they) provide an estimate of your 2015 income to be used for the 2015 subsidy calculation. If YOUR 2015 income estimate is substantially different from the 2013 tax return filed with the IRS in early 2014, you may be required to submit documentation as to why.
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Old 12-07-2014, 08:10 AM   #12
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Originally Posted by audreyh1 View Post
I don't believe inheritance counts as income. Neither does a gift under the exclusion. In any case, it's the estate that has to pay any tax
Not quite true... they pay estate taxes... but not income taxes if there are distributions....

You have to think of an estate as two separate entities....

The first is the balance sheet the day of death... you list all assets and liabilities and determine if you need to file a death tax return...

The second is a 'trust'... this is where all the assets are placed prior to them being distributed to the beneficiary... the assets usually earn income and someone has to pay taxes on this income... if there are distributions from the trust to the bene then that income flows to the bene via the K-1... this 'trust' can last many years... some I have seen were 20 years and still going... Heck, I just found out that my mother never changed the name on an asset of my father who died in 1980 and it list his estate as the owner.... Just more work for me
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Old 12-07-2014, 08:17 AM   #13
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TP, but to be clear, the only distributions from a trust that are taxable are income distributions (trust income that is distributed to beneficiaries), distributions of "principal" are not taxable.

While it isn't totally clear, it sound like the OP's case is a simple inheritance, not the distribution of income from a trust.

The OP said that they don't have to pay taxes on that "income" and it would not fall into one of the adjustments from AGI to O-MAGI so it would not affect O-MAGI.
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Old 12-07-2014, 04:13 PM   #14
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Originally Posted by pb4uski View Post
TP, but to be clear, the only distributions from a trust that are taxable are income distributions (trust income that is distributed to beneficiaries), distributions of "principal" are not taxable.

While it isn't totally clear, it sound like the OP's case is a simple inheritance, not the distribution of income from a trust.

The OP said that they don't have to pay taxes on that "income" and it would not fall into one of the adjustments from AGI to O-MAGI so it would not affect O-MAGI.
The main asset my mother had was her house, the mortgage had been paid off years ago. She had some savings and an IRA, but not that much. My sister, the executor, sold the house about 5 months after our mother passed. It took a bit of time because all the contents of the house had to be removed and put someplace, disposed of, etc. She spoke with the people who do her taxes and following their instructions and what we could find by searching on the internet she thinks we will owe no taxes. I have asked her to check again with her tax person. The estate divided among us 4 siblings doesn't amount to a large amount for each individual.
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