Is there a federal inheritance tax? Here's how much inherited money is taxed state-by-state.
Inheriting money can be a blessing, but it can also come with a hefty tax burden. Depending on your state, you may owe inheritance taxes when you receive an inheritance. The good news is that there is no federal inheritance tax, so the only taxes you may owe will be at the state level.
Inheritance taxes are levied on the estate of the deceased, and the amount of taxes owed depends on the size of the estate and the relationship of the beneficiary to the deceased. In most cases, spouses and direct descendants are exempt from inheritance taxes, while other family members and non-relatives may be subject to them.
At the state level, the amount of taxes owed can vary widely. Some states, such as Arizona and Idaho, do not impose any inheritance taxes. On the other hand, states like Iowa and Kentucky have some of the highest inheritance taxes in the country. In Iowa, the inheritance tax rate is 15% for non-relatives, while in Kentucky, the rate is 16%.
In addition to inheritance taxes, you may also owe federal taxes on your inheritance. If the estate of the deceased is large enough, it may be subject to federal estate taxes. In 2020, the federal estate tax applies only to estates worth more than $11.58 million. For estates worth less than that amount, no federal estate taxes are due.
When it comes to inheritance taxes, it’s important to be aware of the laws in your state. You may be able to reduce your inheritance tax burden by planning ahead and taking advantage of any exemptions or deductions available in your state. It’s also important to consult with a tax professional to ensure that you are properly filing your returns and paying the correct amount of taxes.
Inheriting money can be a great blessing, but it can also come with a hefty tax burden. Understanding the laws in your state and consulting with a tax professional can help you reduce your tax burden and ensure that you are paying the correct amount of taxes.