A question that commonly arises in Florida is whether the state has an inheritance tax. As a beneficiary, it’s important for you to know what kind of charges you’re responsible for, so let’s read on to learn if Florida has an inheritance tax and more.
A few states levy taxes on the estates of deceased persons. These are commonly known as the inheritance tax or the death tax. Florida doesn’t have a separate state inheritance tax. This is the good news. Florida’s heirs and beneficiaries don’t have to pay income taxes on any inheritance monies. This is because the inherited property doesn’t count as income for Federal income tax purposes. Florida doesn’t have an income tax.
As an example, let’s say your father passes away and you inherit a house worth $175,000. For income tax purposes, the receipt of the home isn’t considered income, as inherited assets do not count as income. There are, however, some tax rules you need to be aware of.
Federal Estate Taxes
Florida doesn’t have an inheritance (or death) tax. However, the federal government imposes estate taxes that apply to all residents. Federal estate taxes are only applicable if the total estate’s value exceeds $11.7 million as of 2021. The tax that is incurred is paid out by the trust/estate and not the beneficiaries. The federal estate tax is not something that most people/estates should be concerned about. It doubles to $23.4 million for married couples.
Inheritances and Tax Concerns
The estate tax is not an issue for those who die with more than $11.7 million (2021). Individual heirs are not generally responsible for taxes. Executor or successor trustees are responsible for collecting and paying estate taxes. The following states impose an inheritance tax as of 2021: Iowa, Nebraska, Maryland, Minnesota, Pennsylvania, and New Jersey.
Other situations where Florida beneficiaries might have to pay inheritance taxes include:
Withdrawing Funds Out of a Retirement Account: Although taxes do not apply to an inheritance, a 401K annuity, a 401K annuity, or other qualified plans that are transferred, income taxes may be levied if the monies are withdrawn from these accounts upon the death of the account holder.
Because the deceased person was liable to income taxes on withdrawals, the beneficiary will also be subject to those income taxes. Additionally, some benefits from investment accounts and pension plans may be taxable. Before you withdraw money from these accounts following the death of a family member, it is a good idea to consult an accountant or attorney. Roth IRA withdrawals are not subject to tax when someone dies.
Obtaining Income from an Estate: Income received before the property is transferred may be subject to tax. If the deceased was the owner of an apartment building and tenants paid rent to the beneficiaries, the heirs could be subject to income tax.
Income Is Not Earned by Inheritance: The inheritance received by a beneficiary is not subject to income tax. However, the estate might earn income during settlement. You might get $20,000 in life insurance from your mom. You do not owe any tax on the $20,000, but it is taxable income. However, if the life insurance policy had income before it was distributed, then the income would be subject to tax. If a policy is quickly claimed, any income is unlikely to be significant.
Selling Inherited Property: Income taxes do not apply to property that is directly received from an estate or trust. If the assets you inherit have increased in value, federal income tax may apply to the proceeds. If you get stock worth $20 and then sell it for $25, income tax would be due on the $5 gain. Capital gains may apply if the property was held for more than one year following death. Income tax is only based on the property’s increase in value since the death of the decedent if any. You don’t get income from inheritance.
Inheriting from Someone Who Is Not a U.S. Citizen: Tax complications may arise if the deceased is not a citizen of the United States or any of the beneficiaries are not citizens. A person who is not a permanent resident of the United States but has property in Florida may have the property taxed on their death. Spouses who are not citizens may not be allowed to inherit tax-free. This is where things get complicated.
Call Doane & Doane if You Believe a Will Is Forged
Do you have questions about an estate plan or its taxes? Call Doane & Doane if you need an experienced tax attorney to assist you in any of your estate planning matters. Our legal team will ensure that you get the guidance and direction you need.
The information in this blog post is for reference only and not legal advice. As such, you should not decide whether to contact a lawyer based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.