Do you have to pay taxes on inheritance?

 

Inheritance is associated with numerous tax complications. When you are inheriting something, you will often get confused with these laws. You will get numerous questions on your mind. The biggest question you will get out of them is, do you have to pay taxes on an inheritance?

Receiving an inheritance can be a blessing. However, you will not experience that when you were told that you have to pay taxes. That’s why you need to have a complete understanding of the taxes that you will have to pay with property inheritance or even money inheritance. Things can get overwhelmed because of the different factors that you have to consider. That’s why we thought of sharing this helpful article. Based on what you can see in this article, you will be able to get a better understanding of whether you have to pay taxes on inheritance or not. On the other hand, you will be able to get a comprehensive understanding of the overall process. This will help you to refrain from facing numerous complications that would come on your way.

What exactly is inheritance tax?

The very first thing you need to understand when finding answers to the question on “do you have to pay taxes on inheritance” would be the inheritance tax. The inheritance tax is a state tax. You will have to pay this tax on an asset. It can be property or even money that you are receiving from a person from a loved one who has passed away.

Back in the day, all 50 states of the country had an inheritance. However, numerous states have dropped this tax along with time. As of now, inheritance tax can be found only in few states, including New Jersey, Nebraska, Maryland, Kentucky, Iowa, and Pennsylvania.

When you take a look at the inheritance tax, you will need to pay attention to numerous factors. For example, you will come across the need to understand from whom you are receiving the inheritance. It can be one of your parents, your uncle or even your cousin. On the other hand, you will need to take a look at the amount of money that you will be receiving as inheritance. You should also take a look at the state where the inheritance resides and the state that you live in.

Who will have to pay the tax?

Now you have a basic understanding of inheritance tax. Along with that, you need to understand who will have to pay the inheritance tax. In case if your loved person who passed away lived in one of the states we stated above, you will have to pay inheritance taxes.  You might not be from any of those states. But still, you will have to pay the inheritance tax.

However, there are certain complex conditions associated with it. If you are getting the inheritance from your spouses, parents, or grandparents, you will not have to pay any inheritance tax. However, you will have to pay inheritance taxes when you are getting the inheritance from in-laws, cousins, and other distantly related family members. These conditions can also vary from one state to another. Therefore, it is better to get in touch with a property lawyer in your state and learn more about it. Based on that, you will be able to end up with getting a clear understanding about how much inheritance tax that you should be paying.

In case if your loved one who passed away lived in any of the 44 states where there is inheritance, you will not have to pay any inheritance taxes. You can be from one of the six states where inheritance tax is present. However, you don’t have to pay inheritance tax. This is something that you must be interested in getting to know about.

How does inheritance tax work?

Assume that you have to pay inheritance taxes. Then you will need to have a complete understanding on how it works. Then you will be able to make the tax payments in a timely manner and make sure that you are overcoming any complications that can arise as a result of it.

Inheritance tax would come into place after the executor of the states divide all the assets among beneficiaries. The inheritance tax amount will be calculated for each individual separately. Then each individual should pay separate taxes.

For example, your state will collect 5% of tax on all the property and money you inherit, where the value is over $2 million. In case if your friend or cousin left you with $5 million, you will only have to pay an inheritance of $3 million. Hence, the amount of money that you will have to pay as the inheritance tax is $150,000. The exact percentage would vary from one state to another. Therefore, you must closely work along with a property lawyer. Then you will be able to get the job done without facing any complications at all.

After you pay the inheritance tax, the state would also ask you to report all the information. You will need to do this with the help of an inheritance tax form. Your property lawyer will be able to provide clear guidance on how to do it. You just need to follow the steps and you will be able to follow.

Understanding the difference between estate tax and inheritance tax

Some people assume that inheritance is the same thing as state tax. This is not true at all. You will be able to find numerous differences between the state tax and inheritance tax. It is a must to have a clear understanding about those differences. Then you will be able to make sure that you pay the taxes while keeping a complete understanding about the taxes.

Estate tax would be a federal tax. In here, the value of your asset would be measured, and you will be asked to pay a tax based on that, you will usually have to pay the tax if the amount is over $11.58 million. This is according to the figures of 2020 and it would usually vary.

Final words

By now, you have a clear understanding to the question, do you have to pay taxes on inheritance. While keeping this in mind, you will be able to proceed with paying taxes. If you have to pay taxes, it is a must to seek the assistance of a property lawyer and overcome the complications that you have to face.