Good to know! Def planning to invest some of it

Thanks for explaining the stepped-up basis thing @Sadie Benitez! I hadn't heard of that before. So if my grandmother had stocks that went up in value over the years, I wouldn't have to pay capital gains on that appreciation from when she originally bought them? That's actually really helpful to know since she did leave me some investments along with the cash.

Do you know which states have inheritance taxes? I'm in Pennsylvania and my grandmother just passed away, wondering if I need to worry about this.

Pennsylvania is actually one of the states that does have an inheritance tax! The others are Iowa, Kentucky, Maryland, Nebraska, and New Jersey. The rates in Pennsylvania vary depending on your relationship to the person who passed away - 0% for surviving spouses, 4.5% for direct descendants like children and grandchildren, 12% for siblings, and 15% for other heirs. Since you're a grandchild, you'd likely fall into the 4.5% category. There may be exemptions or deductions available though, so you should definitely consult with a tax professional familiar with PA inheritance tax laws. The inheritance tax return in Pennsylvania is typically due 9 months after the death.

What kind of documentation should people keep? I'm about to receive an inheritance and want to avoid problems.

Keep copies of all estate documents showing what you inherited and the fair market value at the date of death - this establishes your "stepped-up basis" for any assets. Save bank statements showing the original inheritance deposits separate from any interest earned. For stocks or investments, keep the brokerage statements showing the transfer and value when you received them. If you sell anything later, you'll need these to calculate capital gains properly. Also keep receipts for any estate administration costs you might be able to deduct. Basically, create a clear paper trail showing inheritance principal vs. any income generated after you received it.

Getting an appraisal a few months after death is actually pretty standard and shouldn't be a problem. Professional appraisers are trained to establish "retrospective" valuations - they can look at comparable sales, market conditions, and other factors that existed on the specific date of death to determine what the property was worth then. Make sure to tell the appraiser upfront that you need a "date of death valuation" for estate tax purposes. They'll use sales data and market conditions from around that time period rather than current values. Most estate appraisers are very familiar with this process since it's so common. You might also want to gather any recent property tax assessments, prior appraisals, or real estate listings from around the time of her passing to help support the valuation. The key is getting it done sooner rather than later while the market data from that timeframe is still readily available.

This is exactly the kind of detail I needed to hear! I had no idea that retirement accounts don't get the stepped-up basis treatment. My dad actually had a pretty substantial 401k that I was assuming would also get stepped up to current value. So if I'm understanding correctly - the $2.2M property gets stepped up from his $120K basis to the current fair market value, but if he had say $500K in his 401k, I'd still owe regular income tax on any distributions from that account just like he would have? That's a pretty significant difference in tax treatment. Are there any other common assets that don't qualify for stepped-up basis that I should be aware of? I want to make sure I'm not making any other incorrect assumptions as we work through the estate planning process.

I wish I could do that! Unfortunately I'm really tight on money right now. Just paid my car insurance and medical bills so I'm basically broke until next payday. Do you know if they'll accept partial payment to show good faith while I try to get the rest together?

Yes, they'll usually accept partial payments! Even making a small payment shows good faith and can help when negotiating. Call them and explain your situation exactly as you did here - that you want to pay but need time to get the full amount together. If you can pay even $50 now, that looks better than waiting. Also ask if they can waive any penalties that might have been added to the original tax amount. Sometimes they have discretion to remove those if it's your first issue with them and you're being cooperative.

This is really helpful advice! I had no idea about hardship provisions. Since I mentioned I'm living paycheck to paycheck, this might be exactly what I need. Do you know if there's a specific form I need to fill out or if I just explain my situation when I call? Also, how detailed do I need to get with my monthly expenses - like do they want to see bank statements or just a breakdown of rent, utilities, groceries etc? I'm definitely going to start keeping better records from now on. I think part of how I got into this mess was not staying organized with my tax paperwork. Thanks for the encouragement too - you're right that $204 could be a lot worse!

Small correction - part of the Child Tax Credit is refundable (the Additional Child Tax Credit), so even if she doesn't have enough tax liability, she could still get some benefit. But you're right that maximizing the non-refundable portion is important for the overall household finances!

You're absolutely right about the refundable portion - thanks for the correction! The Additional Child Tax Credit can provide up to $1,600 as a refundable credit even if tax liability is lower. Still, for maximum household benefit, it's worth calculating which arrangement gives the best overall result when factoring in both the refundable and non-refundable portions. Every family situation is different, and running the numbers through tax software both ways (with each parent claiming different combinations of children) can often reveal the optimal filing strategy.

This is really solid advice! I'm just starting to think about my tax situation for next year and keeping a monthly log sounds like a game-changer. Do you have any specific format you'd recommend for tracking expenses? Like should I separate things by category (utilities, groceries, etc.) or just track the total amounts each person contributes? Also curious about your comment on IRS getting stricter - did you end up getting audited or just hear about it happening to others? Want to make sure I'm being extra careful with documentation from the start.