It’s not uncommon for a beneficiary to have to pay an inheritance tax on any estate assets that they receive when someone dies. An inheritance tax is different from an estate tax. The former is a rate that an heir is assessed based on the value of an inherited item and their relationship with the deceased individual. An estate tax is based on the value of the estate. Although there isn’t any inheritance tax in Florida, you may still owe if a decedent has previously lived in other states.
The federal government does not have an inheritance tax. The IRS does not consider most inheritances as income, except for withdrawals made from retirement accounts such as Individual Retirement Accounts (IRAs) and 401(k)s. The other exception is if someone inherits assets or property that generates interest or income. The income or interest generated from that transfer of property would be considered taxable income.
As of 2019, 6 states imposed inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland has both an estate and inheritance tax. The same was true for New Jersey until the estate tax was repealed in 2018. The inheritance tax is subject to certain thresholds. For example, in Iowa, there is no inheritance tax on estates with a value of less than $25,000. In Maryland, there is no inheritance tax on estates of less than $30,000.
A Florida resident generally isn’t subject to paying anything unless the decedent previously lived in a state that had an inheritance tax. An heir may have to pay something if they receive real property that is physically located in an inheritance tax state though.
Whether someone is subject to an inheritance tax may also depend on an heir’s relationship with the decedent. None of the aforementioned six states have inheritance taxes for surviving spouses or domestic partners. Children and grandchildren are exempt from the inheritance tax, except for in Nebraska and Pennsylvania. The inheritance tax ranges from 0% to 18% depending on the state and the value of the estate.
Inheritance tax laws can be quite tricky. It’s easy for you not to realize that you owe taxes or for you to pay more or less than you should. An estate tax attorney in Miami can aid you in identifying all the taxes that you need to pay so that you remain in compliance with all applicable laws.