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You know what they say about death and taxes. And when it comes to death taxes, it appears that some states are not good places to die.
The American Taxpayer Relief Act of 2012 made permanent a $5 million federal estate tax exemption, which is indexed annually for inflation. But that doesn’t mean you’re in the clear. Nineteen states and the District of Columbia have their own estate and/or inheritance taxes.
For 2014, up to $5.34 million of an individual’s estate will be exempt from federal estate tax, with a 40 percent tax rate applied to any excess over the exemption amount. By contrast, states with estate taxes typically exempt far less per estate from their tax and impose a top rate of 16 percent. As in the federal system, bequests to a spouse are tax-free.
Will you be impacted by state estate or inheritance taxes? Let’s find out.
Estate taxes, including tax rates. These are “based on the entire value of your estate in excess of the applicable exemption,” wrote Bill Bischoff on MarketWatch.
- Less than $1 million exemption – New Jersey and Rhode Island (both 16 percent).
- $1 million exemption – Maryland, Massachusetts, Minnesota, New York, Oregon, and the District of Columbia (all 16 percent).
- $2 million exemption – Connecticut (12 percent), Maine (12 percent) and Washington (19 percent).
- $5.25 million exemption – Delaware and Hawaii (both 16 percent).
Inheritance taxes. These are “assessed on the value of specific inherited assets in excess of the applicable exemption,” Bischoff wrote. The exemptions are zero or otherwise pretty small, except for Tennessee, where it’s $1.25 million for 2013. The maximum tax rates for 2013 are:
- Iowa – 5 percent.
- Kentucky – 16 percent.
- Maryland – 10 percent.
- Nebraska – 18 percent.
- New Jersey – 16 percent.
- Pennsylvania – 15 percent.
- Tennessee – 9.5 percent.
Maryland and New Jersey impose both an estate and inheritance tax.
Bischoff says that “state inheritance and estate taxes are subtracted from the value of the taxable estate in calculating the federal estate tax.”
While death taxes alone might not be a reason to move from your beloved home, they are something you should discuss with an estate planning professional.
Could you be impacted by state death taxes? Tell us below or on our Facebook page.