UPDATED, Sunday, Nov. 19, 2023, to add a couple of new links as I found as I caught up on my own weekend tax reading.
An inheritance from a friend or relative can be a nice surprise and a way to fondly remember that person.
Such gifts typically do not have any tax implications for either the estate or heirs, at least not immediately, at the federal level.
As noted in Part 6 of the ol' blog's annual tax inflation series, the value of an estate that is exempt from Uncle Sam's clutches goes from $12.92 million per person this year to $13.61 million in 2024.
Bequests from the estates also aren't taxable to the recipients. However, if they produce income — say, a profit later if they are sold or recurring income from, for example, equity assets that are bequeathed — those earnings are taxable.
And depending on where you live, you might face some state tax issues.
"Estate taxes are paid by a decedent's estate before assets are distributed to heirs and are thus imposed on the overall value of the estate. Inheritance taxes are remitted by the recipient of a bequest and are thus based on the amount distributed to each beneficiary. In most states, estate taxes are progressive: the tax rate increases with the total value of the decedent's assets," writes Andrey Yushkov, Senior Policy Analyst with the Center for State Tax Policy at the Tax Foundation.
States with estate and/or inheritance taxes: That distinction is important in the 12 states and the District of Columbia that impose estate taxes and the six states impose inheritance taxes. Maryland has both an estate and an inheritance tax.
The Tax Foundation map below offers a preview.
Yushkov's article goes into more detail on the state estate and inheritance taxes, future potential changes in these tax areas, as well as the history of the role the federal government used to play in the state estate levies.
There's also a handy table of the state estate and inheritance tax rates and exemptions for the 2023 tax year.
Deeper dives into inheritances: But wait, there's more. More money. More tax changes at the state level. And more income inequality.
In the Wall Street Journal article "The Estate Taxes Catching Americans by Surprise" (nonsubscriber link), reporter Ashlea Ebeling elaborates on how estate or inheritance tax rules can change from year to year.
And, she notes, "unlike the federal tax, a big share of state estate- and inheritance-tax revenue doesn't come just from the wealthiest families, but from the large number of smaller estates subject to the levy."
Finally, Andrew Van Dam looks at "How inheritance data secretly explains U.S. inequality" (nonsubscriber link) in his piece for the Washington Post.
His analysis looks at the latest (2022) Survey of Consumer Finances, a project conducted every three years by the Federal Reserve with the help of the nonpartisan research organization NORC (National Opinion Research Center) at the University of Chicago. Among its data, says Van Dam, the "astonishingly exhaustive, almost two-hour battery of questions on income and assets" asked of at least 4,500 Americans "provides our best measure of America's ghastly wealth disparities."
You also might find these items of interest:
- Oregon increases estate tax exemption for family farms
- Just 1.1% of family farms face estate tax under Biden plan
- Democrats propose expanding estate tax, GOP wants to kill 'death tax'
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