Federal Estate Tax
If your mother died during or after 2010, you will not face a federal estate tax unless her total estate is valued at $5 million or more. The total estate can include money from bank accounts, real estate and securities. The IRS values estate assets based on their fair market value. For example, if your mother bought her home for $100,000 in 1960 and the fair market value is now $1 million, the IRS considers the home a $1 million asset. After totaling all assets in the estate, the IRS allows certain deductions to the gross value, such as debts, mortgage payments and administration costs. If the estate has a gross value of less than $5 million after deductions, the IRS does not require payment of estate taxes.
State Estate Tax
Depending on where your mother lived, you may be required to pay a state estate tax. For instance, if your mother lived in Tennessee, and died during or after 2006, you would pay estate tax if her estate were valued at $1 million or more. As of September 2011, Tennessee estate tax ranges from 5.5 percent to 9.5 percent, depending on the estate's value. According to a December 2010 "Forbes" report, 21 states and the District of Columbia levy inheritance or estate taxes.
Final Tax Return
An estate administrator or executor must file a final federal tax return for you mother. If her estate does not have an administrator or executor, a surviving family member must file the final return. In the majority of cases, you must pay taxes on any income she received before her death. As her beneficiary, you may also choose to report the money you received on your federal tax return or file a tax return on the estate. If you file a final tax return for your mother, you need only include income received from the beginning of the tax year until the date of her death. Final state tax return requirements vary from state to state.
When you file a final federal tax return for your mother, the IRS allows you to take certain deductions. For example, if your mother incurred doctor and hospital bills before her death, you may be able to claim a deduction for medical costs. If you choose to take allowable tax deductions, you must itemize expenses. However, if you choose not to itemize, you can typically claim the federal standard deduction, which can also reduce tax liability. Allowable state tax deductions may vary.