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A friend and his brother inherited an IRA from their father. It is stipulated in his will that they must invest the inherited IRA funds and the income would go to his (relatively new) second wife.

Correct me if I'm wrong, but my understanding is that they don't have to pay tax on the inheritance since it is only about $180K ($90K each), right? The threshold above which you have to start paying tax on an inheritance is over a million bucks right?

And what about state tax? First of all, if the father's estate is in Nebraska but the inheritor is in California, it seems to me the income to him is ruled by California tax law. Is that right?
And secondly, do some states actually tax inheritances of this small amount? I don't think California does from what I read.

I Googled around quite a bit but it's very convoluted and complicated!
One thing I found was this: "at the end of 2010, President Obama signed the December 2010 Tax Relief Act. It re-established the federal estate tax at a rate of 35 percent, but with the $5 million exemption. That exemption, by the way, means that only 0.5 percent of all estates in the U.S. will pay any estate taxes at all".

So that sounds like there will be no Federal tax to these guys. Estate tax is Federal, right? But Inheritance tax is a state matter, right?

Any help would be appreciated.
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