The value of property you inherit is generally not subject to federal income tax. For example, if you inherit a $100,000 certificate of deposit, the $100,000 principal isn't taxed, but you must include in your income any interest earned after you become the owner.

But money in traditional IRAs and employer-provided retirement plans — including 401(k) plans — is treated as income in respect of a decedent and taxed to the heir. This rule also applies to earnings in inherited Roth IRAs if the decedent didn't meet the 5-year requirement.

If the decedent owned savings bonds and didn't report the interest annually, the interest accrued through the date of death can be reported on the decedent's final return. If this is not done, the person who inherits the bond reports all accrued interest from the time the decedent acquired the bond when that person redeems the bond. If interest accrued through the date of death is reported on the decedent's final return, the person who inherits bond is taxed only on the amount accrued after death.