Receiving unexpected tax documents can be unsettling, especially during an emotional time after losing a loved one. Many families are asking the same question this year: why did I get a 1099 for inheritance? As the 2025 tax season approaches, the IRS has increased reporting requirements for income related to inherited assets, which has led to a noticeable rise in 1099 forms being issued to beneficiaries. Understanding why you received this form is essential for filing correctly and avoiding unnecessary IRS notices.
🟩 UNDERSTANDING 1099 FORMS AND INHERITANCE
A 1099 form is used to report different types of income that aren’t wages. When someone passes away, their assets may continue to generate income after their death, and this post-death income is often what triggers a 1099. If you inherit a bank account, investment portfolio, retirement account, or property, the financial institutions or parties handling those assets may issue a 1099 form in your name to report that income to the IRS. The inheritance itself isn’t considered taxable income at the federal level, but any income earned after the decedent’s death must be reported on your tax return.
📝 KEY POINTS SUMMARY
- Inheritance itself is not taxable, but income generated by inherited assets after death is taxable.
- 1099 forms are typically issued to report interest, dividends, capital gains, retirement distributions, or property sale proceeds.
- IRS reporting rules in 2025 have increased the number of 1099 forms beneficiaries receive.
- Properly understanding and reporting the income on your tax return is essential to avoid penalties or audits.
🟩 WHY YOU MIGHT RECEIVE A 1099 AFTER INHERITING ASSETS
You might receive a 1099 because the assets you inherited continued to produce income after the original owner’s death. For example, interest from a bank account, dividends from investments, distributions from retirement accounts, or profits from selling property can all lead to a 1099 being issued. These forms are not about taxing the inheritance itself, but about reporting income that the assets generated after the date of death, which is taxable to you as the beneficiary.
🟩 INTEREST AND DIVIDENDS FROM INHERITED ACCOUNTS
If you inherit a savings account, certificate of deposit, or investment portfolio, any interest or dividends that accrue after the date of death are taxable to you. Banks and investment firms typically issue a 1099-INT for interest or a 1099-DIV for dividends in your name. For example, if an inherited account earned $1,200 in interest over several months, you would receive a 1099-INT showing that income. Even if you didn’t withdraw the money, the IRS still considers it taxable because it was credited to your account.
🟩 DISTRIBUTIONS FROM INHERITED RETIREMENT ACCOUNTS
Inherited IRAs and retirement plans are another common reason for receiving a 1099. If you withdraw funds from an inherited IRA or are required to take distributions under the SECURE Act 2.0, you will receive a 1099-R. This form reports the amount you withdrew, which is generally taxable. Most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within 10 years, and each distribution is reported annually. This requirement has led to an increase in 1099-R forms being issued to beneficiaries across the country.
🟩 INCOME DISTRIBUTIONS FROM TRUSTS AND ESTATES
If you’re a beneficiary of a trust or estate that earns income after the person’s death, that income is passed through to you. Instead of staying with the estate, the earnings are reported on a 1099-INT, 1099-DIV, or 1099-B, depending on the source. For example, if the estate sold stocks at a gain, you might receive a 1099-B for your portion of that gain. It’s important to understand that while the estate files its own return for income earned before death, post-death income is transferred to the beneficiaries for tax purposes.
🟩 SALES OF INHERITED PROPERTY
When you sell inherited property, such as a house, the title company typically issues a 1099-S reporting the sale proceeds. The IRS uses this form to track potential capital gains. While inherited property receives a “step-up” in basis to its fair market value at the date of death, any increase in value between that date and the sale date is taxable as capital gains. If you sold the property shortly after inheriting it, the taxable gain may be small, but the 1099-S must still be reported.
🟩 IRS REPORTING TRENDS IN 2025
The IRS has stepped up oversight of estate and inheritance income reporting. Financial institutions are required to issue 1099 forms more consistently and accurately, ensuring income is reported under the correct beneficiary’s Social Security Number. Brokerages must issue 1099-B forms for sales of inherited securities, banks are matching accounts to beneficiaries more closely, and trustees must report distributions with greater transparency. These changes have increased the number of people receiving 1099s related to inheritance, even for small amounts of income.
🟩 HOW TO HANDLE A 1099 FOR INHERITANCE
The first step is to carefully review the type of 1099 you received. Look at whether it’s a 1099-INT, 1099-DIV, 1099-R, 1099-B, or 1099-S, as each corresponds to a different kind of income. Then, match the form to the inherited asset it came from. Check the dates to ensure the income is correctly attributed to the period after death. If there’s an error, such as income reported for the wrong period, you should request a corrected form. Finally, include the information on your tax return in the appropriate section—interest and dividends on Schedule B, capital gains on Schedule D, or IRA distributions on Form 1040.
🟩 COMMON MISUNDERSTANDINGS ABOUT INHERITANCE AND 1099S
A frequent misconception is that receiving a 1099 means the inheritance itself is taxable, which is not true. The form only reports income generated after the decedent’s death. Another misunderstanding is that small amounts can be ignored. Even minor amounts reported on a 1099 must be included on your tax return, as the IRS matches every form. Some also believe the estate handles all taxes, but income after death shifts to the beneficiary. Additionally, state laws vary, and while the federal government does not tax inheritances directly, some states have their own inheritance or income tax rules.
🟩 IRS FOCUS ON COMPLIANCE
The IRS is using automated systems to match 1099 data with tax returns more quickly. Missing 1099 income can trigger CP2000 notices within months of filing. High-value estates and complex asset transfers are receiving closer attention. The IRS has also introduced stricter rules for reporting digital assets such as cryptocurrency inherited and later sold, with new 1099-DA forms coming into play. These developments reflect a broader push toward transparency and compliance in estate-related income reporting.
🟩 EXAMPLE SCENARIOS
| Situation | 1099 Type | Taxable | Who Reports |
|---|---|---|---|
| Interest earned on inherited savings | 1099-INT | Yes | Beneficiary |
| Dividends from inherited investments | 1099-DIV | Yes | Beneficiary |
| IRA distribution received by heir | 1099-R | Yes | Beneficiary |
| Sale of inherited home at a gain | 1099-S | Yes | Beneficiary |
| Income earned before death | Estate | Estate | Estate return only |
🟩 FREQUENTLY ASKED QUESTIONS
1. Do I owe taxes just because I received a 1099 for inheritance?
No. The inheritance itself is not taxable. The 1099 only reports income earned after the person’s death, which is taxable to you.
2. What should I do if the 1099 is wrong?
If the amounts or dates are incorrect, contact the financial institution or executor and request a corrected form as soon as possible to avoid filing errors.
3. Can I ignore a small 1099 amount?
No. Even small amounts must be reported because the IRS matches every 1099 to your tax return, and ignoring it could trigger a notice.
Disclaimer: This article is for general informational purposes only and is not legal or tax advice. Every situation is unique, and you should consult a qualified tax professional for personal guidance.