TAX NEWS - 2010

What is Inheritance Tax?

Simply put, an inheritance tax is a special tax that is imposed when you are left money by someone who has passed away. It is different from a tax that covers the entire value of the left behind estate, as it covers only the portion of the estate which was left to you personally.

The good news is that most states are no longer collecting these type of gift taxes. The remaining states that do still have this tax actively on the books include: Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania, and Tennessee.

If you live in one of these states you will have to look up the law in your particular state or seek the assistance of a professional trained in assessing the amount of the tax due. The laws will vary from one state to another.

Yet, the amount of money that you inherited is not the only thing that determines how much tax you will have to pay. Your relationship to the deceased person is also a big part of the tax. Basically, you will pay more if the person was not related to you by blood.

In most states, the gift taxes will not take effect if your spouse was the one leaving the inheritance to you. This is because the money was already partially yours by right of marriage.

If the deceased person was your parent, then most states allow you to keep a deductible off the top that will not be taxed. The percentage of taxes you are charged on the remaining amount will be considerably lower than others who are not children of the deceased will be charged.

In the case you were not related to the person, you will be charged a higher percentage inheritance tax and you may not be able to keep any of the inheritance out of the taxable amount.