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Inheritance Federal Tax

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Penny Said:

what percentage of US federal government revenue comes from the federal inheritance tax?

We Answered:

4% or less.

That's the best answer I can give you without losing my mind from poring through the OMB website.

I got that figure from the National Priorities Project (linked below), a "nonpartisan education and advocacy organization." They give a combined figure of 4% of federal revenue from "estate and gift taxes, customs duties, and miscellaneous receipts," citing an Office of Management and Budget report.

Kent Said:

How much state and federal tax do you have to pay in Pennsylvania for inheritance.?

We Answered:

There is no Federal tax for the person who inherits. The Federal Estate Tax is paid, for estates valued at more than $2 million, by the estate before the estate is disbursed. As far as the Pennsylvania Inheritance Tax goes, it all depends on your relationship to the deceased. I found this online at a Pennsylvania attorney's web site.

One of the first questions asked by those who prepare to plan their estates is "How will my property be taxed at the time of my death?" Many are pleased to know that they need not worry about federal estate tax since Uncle Sam imposes this levy in the year 2008 only if the estate exceeds $2 million (the federal estate tax threshold is likely to change). The same, however, cannot be said of Pennsylvania inheritance tax. The Pennsylvania tax applies regardless of the size of the estate. There are, however, ways to reduce Pennsylvania's inheritance tax. But to do so, you must understand some of the ground rules.

The Pennsylvania inheritance tax is technically a tax on the beneficiary's right to receive your property. The amount of tax a beneficiary pays depends on the value of the property they receive and their relationship to you. Traditionally, the Pennsylvania inheritance tax had a two tax rates. A rate of six percent applied to assets that passed to so-called lineal descendants, such as children, grandchildren and stepchildren. A rate of 15% applied to so-called collateral beneficiaries. This included brothers, sisters, nieces and nephews and all others. Transfers to charities were exempt from tax as were assets owned by spouses with rights of survivorship. These two rates were the law until 1995 when a third rate was introduced. That third rate is a zero percent rate that applies to assets that are left to a spouse. This spousal exemption is discussed in another article.

However, Governor Ridge signed a new tax act on May 24, 2000, that cuts these rates. Under the new tax act, the six percent rate is reduced to 4.5% effective for those who die after June 30, 2000. As such, if you leave your children $100,000, the tax bite will now be $4,500. That's $1,500 less than it would have been under the old law. In addition to children, this new 4.5% rate also applies to assets that are left to grandchildren, stepchildren, and parents.

The new tax act also introduces a new rate for transfers to siblings. Siblings are defined to include those who have at least one parent in common with the decedent, whether by blood or adoption. Assets that pass to siblings will now be taxed at 12%. Once again this applies to decedents dying after June 30, 2000. Unfortunately, the 15% rate stays in place for things you leave to nieces and nephews and unrelated beneficiaries.

The final change under the new tax act has to do with an exemption from tax that applies to assets that pass from a child to a parent. Upon the death of a child age 21 or younger, there is no longer any tax on assets that pass to that child's parent or stepparent.

For many, these tax rates sound steep. Fortunately, however, the tax is not imposed on the gross value of your estate. First, when your executor or administrator prepares the tax return, they will get to deduct debts that you owed, funeral expenses and any other estate settlement costs. A $3,500 family exemption may also be available as an additional deduction. Secondly, certain property is exempt from the tax altogether. The most important exemption is for property that is owned jointly by a husband and wife. Therefore, if you and your spouse own all of your property jointly, upon death of the first spouse there will be no Pennsylvania inheritance tax. As a technical matter, property owned individually by one spouse is subject to tax even though it passes to the surviving spouse under the terms of a Will. However, since the current tax rate on property passing to a spouse is zero percent, it doesn't create any tax.

Life insurance proceeds are also exempt from Pennsylvania inheritance tax. So, too, are the benefits from many retirement plans, but you have to weave through technical rules to make sure it's exempt. Unfortunately, it's safe to say that the Department of Revenue says that an IRA is subject to inheritance tax if the decedent was over age 59 ½ at the time of death.

While these exemptions are nice, certain other property is subject to tax even though you may not have owned property at the time of your death. For instance, if you gave your entire estate to a child, but failed to survive that gift for a period of one year, that gift would be subject to a 4.5% inheritance tax to the extent it exceeded $3,000. Also, suppose you give your house to your son but reserve the right to live there for the rest of your life. Because you reserved this right, the entire value of the house would be taxed upon your death.

As you can see, many factors will influence the amount of inheritance tax your

Irene Said:

What is the federal inheritance tax? Is it true or more you are exempt in 2006 and 2007?

We Answered:

The federal tax is an estate tax. It applies to the total sum of assests left by the deceased. If this amount is $2 Million or LESS, then the estate isn't taxed and the entire amount is left to the heirs. If the decedent left more than $2Million, then the estate will pay 35-55% of the excess in tax. Most states (but not all) base their tax on the amount of federal tax paid.

At the federal level, there is no inheritance tax, so the amounts received by the heirs is not taxed.

Leroy Said:

Is there an inheritance tax currently in force in the US (either at the Federal or State level)?

We Answered:

Federal is called estate and it's paid before anything is distributed. See IRS pub 559 and form 706.

A few states have inheritance taxes.

Marie Said:

In oregon and federal do you have to pay income tax on an inheritance?

We Answered:

You never pay taxes on an inheritance. The estate pays any taxes.

If the value of the house was $200,000 on the date of death (or the later alternate date) and you sell it for $225,000 then you may have a taxable gain. Did you move into the house? If so, and you lived there for a while in the five years prior to sale, then you may qualify for a pro-rated exclusion.

The rules on the gain exclusion changed as of January 1, 2009. Did you sell before or after then?

Shawn Said:

I need an answer ,what in CA is your tax on inheritance not estate just the cash.Is it federal or state?

We Answered:

Your question is vaguely worded. If I am interpreting it correctly, you're asking about the tax on a received inheritance. There is no tax on a received inheritance. There may be estate taxes paid out of the estate. Those taxes may (hopefully not) reduce the payable bequests. But an heir does not pay federal or state income taxes on an inheritance.

If you were asking a different question, please clarify and I'll try to edit in a better answer. Your Ad Here

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