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Inheritance Tax Laws

Inheritance Tax laws require the beneficiary of an inheritance to pay tax on his/her share received. An estate is considered closed only once the Inheritance Tax has been paid. Certain exemptions and conditions may vary from one jurisdiction to another, which is why local laws need to be consulted for specific requirements in that area. Read below where Experts have answered many questions relating Inheritance Tax Laws.

If the decedent owned $10,000 in assets that were not liquidated and passed on to inheritors, what are the requirements for filing inheritance tax in New Jersey?

Typically, in New Jersey, you will not be required to pay inheritance tax unless the estate is at least $675,000. For this reason, there is no filing requirement.

If a parent is a permanent resident in the U.S and their child is a Canadian tax resident can both parties minimize taxes by either the parent giving the child their portfolio as a gift or drop the parents green card status and move to Canada?

If the parent chooses to gift the assets to the child, it will be taxed as per gift tax code as the property is within the U.S. Unless the property exceeds $1 million, it will not be liable for estate taxes in the U.S. at the time of the parents dead death if the property passes to the child. This is different from an inheritance tax, which the child is not liable for. The child will then get a step up in basis as the inheritor, and any property sold by the child will not be liable for capital gains tax.

Even if the parent gives up their U.S. citizenship, as long as the property is within the U.S., the parent’s estate will still be taxable. If the parent gifts it to the child and avoids gift tax, then there will be no estate tax regardless of whether the parent remains a citizen of the U.S. However, in this case, the child will get their parents basis. This means that the child will incur capital gains on sale of the property.

In Pennsylvania, should outstanding mortgage on the property be subtracted while calculating Inheritance Tax on the Fair Market Value?

The net value of the property is calculated as the Fair Market Value minus any encumbrances, including outstanding mortgage, present on the property at the time that the property is transferred. As such, in Pennsylvania, inheritance tax is calculated only on the net value of the property transferred.

If the estate is in Missouri and I live in Mississippi, what can I do to minimize inheritance tax liability?

While Mississippi does not have inheritance tax (it used to exist but has been done away with), if the assets owned by the deceased are worth over $5 million, it will be subject to estate tax.

The key difference between the estate tax and inheritance tax lies in who is made liable to pay. Estate taxes apply the value assessed against the entire estate. In inheritance tax, however, each beneficiary is taxed individually. Since Mississippi does not have inheritance tax, the beneficiaries may have to only pay income taxes as per 401k or other tax deferred investment scheme.

Tax laws vary from state to state. Some states impose both estate and inheritance taxes—Kentucky for example—while others impose only one of them, like Ohio’s estate tax. Some estate taxes operate independent of the federal tax laws. If you wish to know more about the laws applying to your state, contact the thousands of available Experts.
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