If an undivided inheritance generates income, it must be declared in the IRS by each heir, DECO PROTeste explains. Do you know what an undivided inheritance is? Let’s break it down.
“An undivided inheritance refers to the collection of assets, rights, or legal relationships left by a deceased person that have not yet been shared among the heirs“, states the consumer protection organization, adding that it is “an intermediate stage in the process of distributing the assets to be inherited: until a formal division of these assets is made through a sharing process, the inheritance remains undivided, meaning the assets of the inheritance are considered as a whole and belong collectively to the heirs, without each having a specific share of any given asset.”
Additionally, “an inheritance can remain undivided for a period not exceeding five years, although this period can be renewed if there is a new agreement among all heirs.”
Thus, “while the division of assets among all heirs is not completed and the inheritance remains undivided, the heirs must fulfill certain tax obligations, namely, declaring the income generated by the inheritance in the IRS.”
“The process requires consulting information regarding the assets to be declared to ascertain the values that must be declared. Each type of income must be declared in its own annex,” it reads.
In practice, when several children inherit a house, often one buys out the others’ shares and pays them the difference. Until now, the IRS required all parties to pay taxes on that amount, but the STA declared it illegal.
Notícias ao Minuto | 08:25 – 16/07/2025
Undivided inheritance in the IRS
According to the consumer protection organization, “solely, the assets that make up an undivided inheritance are not subject to IRS”, as “this tax does not apply to the assets themselves, but rather to their respective income.”
However, “if the assets generate income, they must be declared in the IRS and are subject to taxation.”
“Each heir must declare their share of the income generated by the undivided inheritance and pay the corresponding tax. The income can come from business and professional activities (category B), real estate income (property rental – category F), capital gains, for instance from the sale of shares or other investment securities (category G), or capital income (dividends from shares and interest – category E),” it explains.
And the capital gains?
Furthermore, according to DECO PROTeste, “in the event of selling the share of an inheritance to which an heir is entitled (referred to as ‘hereditary quota’), which may consist solely of real estate, the heir does not pay capital gains tax on that portion, as it only concerns the transfer of a share of the inheritance.”
“According to a ruling by the Supreme Administrative Court, dated April 29, 2025, the sale of the hereditary quota does not constitute ‘onerous transfer of real rights over real estate’, and thus any gains from this sale are not subject to IRS,” the organization notes.
