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Out-of-state inheritance and estate taxes

Many families are spread across the country these days. This leads to a unique set of issues with interstate transfers of estate property. Florida does not collect death taxes, but other states may do so.

Depending on the value of an estate, inheritors might need to use the tax totals from other jurisdictions for further calculations. Accurate calculation is necessary to avoid potential conflict with the IRS. The good news is that relatively few states have inheritance or estate taxes. 

Tax law is complex: It is made up of federal and local codes that change from one year to the next. According to The Tax Foundation, there are six states that levy inheritance taxes, and 12 that have an estate tax. Among these are some of the most populous and wealthy:

  • Illinois
  • New York
  • Maryland / Washington D.C. 
  • Hawaii

When Florida residents pass away, the IRS would need information about the taxes paid on and the value of both local and out-of-state holdings. The Florida Statutes outline the process of calculating federal estate value. Other states have various rules on these taxes, so it is often necessary to review the applicable code and case law to ensure that the inheritance charges are valid.

Luckily, most people need only worry about paying estate tax in other states, rather than determining to what extent out-of-state taxes paid diminish the overall burden. It bears mentioning that federal tax issues are unlikely to concern most Floridians. This is because the federal tax exemption is quite high, and also because people often make efforts to reduce estate value -- via trusts, for example.

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