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Inheritance tax
Posted on 1/21/21 at 11:14 am
Posted on 1/21/21 at 11:14 am
Could someone explain inheritance tax to me like I'm 5?
How are you taxed?
When are you taxed if you receive?
What's the logic of inheritance taxes?
How are you taxed?
When are you taxed if you receive?
What's the logic of inheritance taxes?
6
Posted on 1/21/21 at 11:15 am to SaDaTayMoses
Democrats want to steal all of your inheritance essentially
Posted on 1/21/21 at 11:21 am to SaDaTayMoses
quote:Obviously the money belongs to the government not you. You didn’t do anything to earn it except be born. So that’s your sacrifice to be able to receive the gift.
What's the logic of inheritance taxes?
Posted on 1/21/21 at 11:22 am to SaDaTayMoses
How much is inheritance tax, and are there any loop holes around it?
Posted on 1/21/21 at 11:24 am to Fox McCloud
If the value of the assets being transferred is higher than the federal estate tax exemption (which is $11.58 million for singles for tax year 2020 and $23.16 million for married couples), the property can be subject to federal estate tax. States have their own exemption thresholds as well. Estate taxes are deducted from the property that’s being passed on before a beneficiary claims it.
In contrast, with inheritance taxes the focus is usually on who the heir is. And while it’s possible to owe estate taxes at the state and/or federal level, inheritance taxes are only collected by states.
Only six states impose an inheritance tax. So if you’re inheriting something from a person who lived in any of the following places, your inheritance might be subject to state taxes:
Maryland
Nebraska
Kentucky
New Jersey
Pennsylvania
Iowa
If you inherit a traditional IRA or pretax retirement account you will pay income taxes on the distributions.
If you inherit other post tax assets you will receive a stepped up cost basis on those items to limit any capital gains taxes you would owe on their sale.
In contrast, with inheritance taxes the focus is usually on who the heir is. And while it’s possible to owe estate taxes at the state and/or federal level, inheritance taxes are only collected by states.
Only six states impose an inheritance tax. So if you’re inheriting something from a person who lived in any of the following places, your inheritance might be subject to state taxes:
Maryland
Nebraska
Kentucky
New Jersey
Pennsylvania
Iowa
If you inherit a traditional IRA or pretax retirement account you will pay income taxes on the distributions.
If you inherit other post tax assets you will receive a stepped up cost basis on those items to limit any capital gains taxes you would owe on their sale.
Posted on 1/21/21 at 11:25 am to SaDaTayMoses
How much are we talking about here?
Estate taxes don’t kick in until you get to some large numbers
Estate taxes don’t kick in until you get to some large numbers
Posted on 1/21/21 at 11:26 am to SaDaTayMoses
Inheritance taxes are only applicable in a handful of states. Did you mean the estate tax, which is a federal thing?
Federal estate taxes only kick-in if you have ~$12M+ per person, so if Married, its nearly $24M+ in assets. If you're below that number, don't sweat it. If you are above it, then its basically 40% on the estate above $24M [so a $30M estate would pay 40% taxes on $6M, yielding $27.6M to the heirs]. The estate pays it out prior to being distributed to the heirs.
The logic is for Uncle Sam to get a taste of large fortunes and to prevent all future generations from just collecting a huge sum of money.
If you are above the $24M, go talk to a lawyer/accountant about how to shield some of the assets from the tax man. Lots of options there that they can advise you on.
There are also gift taxes which basically prevent you from giving away your assets before you die and the taxman can collect it.
Federal estate taxes only kick-in if you have ~$12M+ per person, so if Married, its nearly $24M+ in assets. If you're below that number, don't sweat it. If you are above it, then its basically 40% on the estate above $24M [so a $30M estate would pay 40% taxes on $6M, yielding $27.6M to the heirs]. The estate pays it out prior to being distributed to the heirs.
The logic is for Uncle Sam to get a taste of large fortunes and to prevent all future generations from just collecting a huge sum of money.
If you are above the $24M, go talk to a lawyer/accountant about how to shield some of the assets from the tax man. Lots of options there that they can advise you on.
There are also gift taxes which basically prevent you from giving away your assets before you die and the taxman can collect it.
This post was edited on 1/21/21 at 11:27 am
Posted on 1/21/21 at 3:38 pm to SaDaTayMoses
quote:
Could someone explain inheritance tax to me like I'm 5?
Inheritance tax is very rare, and estate taxes are even more rare.
quote:
How are you taxed?
Inheritance tax is a state level tax in a few states, that simply takes your inheritance, and applies a tax on it. Just like some states take your income, and apply a tax on it.
Estate tax is a federal level tax that is applied on the fair market value of assets above a (currently) pretty high value.
For every 10,000 people that die in the US, under current rules 7 will pay estate tax.
quote:
When are you taxed if you receive?
Inheritances that are subject to state tax generally are taxed when you are placed in possession. With the estate tax, it's 9 months (with an extension available) after death. There are provisions available to delay this tax as well, depending on the asset base.
quote:
What's the logic of inheritance taxes?
Government needs money? LOL. It has roots in the idea that appreciated assets should not be able to pass from generation to generation without being taxed. Basically, that there should be a time limit on how long appreciation can go untaxed.
A basic example... let's say in 1980 you purchased a number of shares of JPM stock, for a cost of $1M. Now, those shares are worth $50M. You've never sold any. You are single, you die, and you leave the stock to your sole son.
No estate tax (and no related step-up rules), your son now has stock with an untaxed unrealized gain of $49M. It can continue to grow, and he can continue to pass it down.
With estate tax, that $49M is taxed at your death. Your son gets a stepup in basis to $50M. So the appreciation is taxed earlier than it would otherwise be.
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