If you have a job and own a home in the U.S., then you’re probably familiar with income and property taxes. If you’ve ever purchased an item at the store, you’re probably aware of sales tax, too. But did you know you could be taxed on inheritance money?
This type of tax is not quite the same as estate taxes, but the two are often confused for one another. Continue reading to learn more about inheritance tax and how it differs from estate taxes.
If you inherit a large amount of money or property from someone who has passed away, then you may be subject to an inheritance tax. Also known as a death tax, this is a type of tax that you will owe based on the value of your inheritance.
Inheritance taxes are often confused with estate taxes. While these two types of taxes are related, there is one notable difference between them when it comes to who owes the taxes.
- An inheritance tax is to be paid by the individual who has received the inheritance.
- An estate tax is to be paid by the estate of the deceased.
The term “estate” refers to all of the land and property that is owned by someone at the time of their death. While the estate owner is still living, he or she will usually appoint an executor of their estate to distribute their assets once they pass away. This executor is responsible for filling out an estate tax return in order to pay calculated estate taxes out of the actual value of the estate.
The amount of money that an estate executor must pay on an estate’s behalf depends on the total value of the estate and the current federal rate for the estate tax exemption. Currently, the estate tax exemption is $11.7 million, meaning that if your estate is valued below this, it will not usually be subject to estate taxes.
