Most people don't have to worry about the Federal Estate Tax, which excludes up to $12.92 million for individuals and $25.84 million for married couples in 2023 (up from $12.06 million and $24.12 million, respectively, for the 2022 tax year). But 17 states and the District of Columbia may tax your Estate, an Inheritance or Both, according to the Tax Foundation.
Eleven states have only an Estate Tax with certain Exclusions: Connecticut (12%; Exclusion $12,920,000.00), Delaware (11.2% - 16%), Hawaii (10% - 20%; Exclusion $5,490,000.00), Illinois (0.8% - 16%; Exclusion $4,000,000.00), Maine (8% - 12%; Exclusion $6,410,000.00), Massachusetts (0.8% - 16%; Exclusion $2,000.000.00), Minnesota (13% - 16%), New York (3.06% - 16%; Exclusion $6,580,000.00), Oregon (10% - 16%; Exclusion $1,000,000.00), Rhode Island (0.8% - 16%; Exclusion $1,733,264.00), Vermont (16%; Exclusion $5,000,000.00) and Washington (10% - 20%; Exclusion $2,193,000.00). The District of Columbia (11.2% - 16%; Exclusion $4,528,800.00) does, as well.
Estate Taxes are levied on the value of a decedent's assets after debts have been paid. Maine, for example, levies no tax on the first $6.41 million of an estate and taxes amounts above that at a rate of 8 percent to a maximum of 12 percent.
Iowa (0% - 6%), Kentucky (0% - 16%), Nebraska (0% - 15%), New Jersey (0% - 16%), and Pennsylvania (0% - 15%) have only an Inheritance Tax — that is, a tax on what you receive as the beneficiary of an estate. Kentucky, for example, taxes inheritances at up to 16 percent. Spouses and certain other heirs are typically excluded by states from paying inheritance taxes.
Maryland (Estate Tax 0.8% - 16%; Inheritance Tax 0% -10%; Exclusion $5,000,000.00) is the lone state that levies both an inheritance tax and an estate tax.
The Tax Cuts and Jobs Act, signed into law in 2017, doubled the exemption for the federal estate tax and indexed that exemption to inflation. The maximum federal estate tax rate is 40 percent on the value of an estate above that amount. The higher exemption will expire on Dec. 31, 2025.
Relatively few people pay federal estate taxes. About 6,158 estate-tax returns were filed for people who died in 2021; of those, only 2,584 estates were taxable. Because of the large exemption, few farms or family businesses pay the tax.
There is no federal tax on inheritances. Heirs can get an extra advantage when they inherit an appreciated asset, such as a stock or mutual fund. When they sell that asset, the taxable gain is generally computed favorably, based on the value of the asset at the time of the original owner's death rather than the value when the original owner purchased it. That typically results in a smaller taxable gain for the heir.
This article was provided by John Waggoner and originally appeared on the AARP website, and brought to you by the RJ Fichera Law Firm , where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, Contact Us today!
This is not tax advice and should not be construed as such. Please seek professional tax services for more information and advice that will apply to your specific tax situation.
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