Inheritance tax :Who ,Why & How ?


Most of the time, only big estates feel the bite of taxes — odds are you won’t have to pay them. But there are exceptions, and the specifics of your inheritance tax situation can dramatically change your tax bill.

Why inheritance tax ?

What is an inheritance tax? Inheritance tax is a tax on the value of assets that you receive on death of someone .For example, the assets belong to your parents or relatives that legally comes to you after their demise. Some states in USA imposes a tax known as inheritance tax.There is no Federal tax on assets received as inheritance property..

What is difference between Inheritance tax and estate tax?

While the Estate taxes are paid out of the deceased’s estate, inheritance taxes has to be paid by the person who inherited the property.In USA, estate has to pay federal tax as well estate tax in many states. Inheritance is only imposed by six states-Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania .

Currently ,there is no federal estate tax upto 11.58 million in the year 2020.The estate tax exemption limit for year 2019 is $11.4 million .It should be noted that since the the estate tax exemption limit is per person, a married couple can claim double of it. The estate tax rates are based on slabs and maximum marginal rate is 40%. The tax is imposed on the fair market value of the assets in an estate.Read  IRS Publication 559 for more on this.

Inheritance tax in USA

In USA , only six states levy inheritance tax .These are -Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania .The rules of inheritance tax among various states regarding estate size and asset vary. For example, while the deceased’s spouse and children are exempted from inheritance tax , but in some states, while estates has to pay tax to Federal govt and state govt. even the beneficiary will have to pay the inheritance tax .

Inheritance tax in California

There is no inheritance in California and there is not estate tax . Therefore, one needs to bother about only federal estate tax if the assets of estate is more than the exclusion amount which is 11.58 million for year 2020.

Inheritance tax in Florida

Florida has no inheritance tax.So, like California ,Florida residents who inherit property in the state will not have to pay any tax of inheritance. Howvere , if you inherit any property situated in a state where inheritance tax is imposed, you will have to pay the inheritance tax to those states.

Inheritance tax in New Jersey

The you receive or inherit properties in New Jersey under a will or trust, you will have to pay inheritance tax .However, there is no inheritance tax if properties are received by immediate family members like spouses, parents, grandparents, and descendants—the children, grandchildren, and great-grandchildren of the deceased.The inheritance tax return—Form IT-R for residents or Form IT-NR for nonresidents—must be filed after paying the tax within eight months of the decedent’s date of death. New Jersey’s rates begin at 11% and rise to 16%. [N.J.S.A. 54:34-2]. The inheritance tax applies to gifts at death, or within 3 years of death, to beneficiaries who are separated into different classes based upon the relationship of the decedent to the beneficiary.

Inheritance tax in Pennsylvania

There is an inheritance tax in Pennsylvania. The percentage paid depends on the relationship between the heir and the decedent.The inheritance tax is imposed on beneficiaries by will, heirs by intestacy and transferees by operation of law. The rates for Pennsylvania inheritance tax are as follows:

  • 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
  • 4.5 percent on transfers to direct descendants and lineal heirs;
  • 12 percent on transfers to siblings; and
  • 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

Property owned jointly between spouses is exempt from inheritance tax.

Effective for estates of decedents dying after June 30, 2012, certain farm land and other agricultural property are exempt from Pennsylvania inheritance tax, provided the property is transferred to eligible recipients. Please visit Pennsylvania govt site for more

Does Texas Have an Inheritance Tax or Estate Tax?

No. There are no inheritance or estate taxes in Texas. The state repealed the inheritance tax beginning on 9/1/15.

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