Last week I discussed the common concern about inheritance and taxes and I explained that there are actually three different types of taxes we are concerned with at death:
- income taxes,
- inheritance taxes, and both
- state and federal estate taxes.
If you missed the post last week where we covered income taxes please click here. Below, I am breaking down Inheritance and both state and federal estate taxes.
The good news for most Florida/Miami-Dade beneficiaries is that they will never have to worry about inheritance taxes because only six states currently collect them – Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. In addition, in all of these states property passing to a surviving spouse is exempt from inheritance taxes, and only Nebraska and Pennsylvania collect inheritances taxes on property passing to children and grandchildren.
So, if the deceased family member (in legalese we call this person the “decedent”) you are inheriting from, didn’t live in Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania or own real estate in any of these states, then you won’t owe any inheritance taxes.
This is true even if you, the person receiving the inheritance, live in one of these six states.
And, even if your deceased family member lived in one of these states or owned real estate in one or more of them, you may or may not owe inheritance taxes depending on your relationship to them.
STATE AND FEDERAL ESTATE TAXES
The good news is that for federal estate tax purposes the 2017 estate tax exemption is $5,490,000. Thus, if the decedent’s estate you are inheriting from is valued at less than this amount, then you won’t owe any federal estate taxes.
With regard to State estate taxes, currently only a handful of jurisdictions collect them – Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Tennessee, Vermont and Washington. So, as with state inheritance taxes, if the decedent you are inheriting from didn’t live in any of these states or own real estate in any of these states, then you won’t owe any state estate taxes even if you, the person receiving the inheritance, live in one of these states.
On the other hand, if the decedent lived in one of these states or owned real estate in one or more of these states, then the value of the estate must exceed the state estate tax exemption before any state estate taxes will be owed.
As you can see there are many types of taxes your inheritance may be subjected to. If you’re not sure if you will have to pay taxes on your inherited property, then consult with an estate planning attorney long before your tax return is due.