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Federal Tax Inheritance Law
Depending on your place of residence, the tax code may refer to inheritance tax, estate tax and even death duty. |
In the US, there is a difference between inheritance tax and estate tax. Inheritance taxes are levied on the beneficiaries of an estate; estate taxes are levied on the estate of the dead person. In other places of the world, the terms inheritance tax and estate tax are used interchangeably.
There is a wrong notion that there is a separate inheritance tax rate in the US. There are, instead exemptions and credits that apply to inherited property or receiving gifts. Under the current law, the Internal Revenue Services (IRS) has a prescribed method of determining if any inheritance tax is on property. We deal with this below.
Basis of Inheritance Tax: The first step to find out if an inheritance tax is due is to calculate the entire estate’s market value. Cash, bank accounts, real state insurance, stocks and bonds and the like are included. The total fair market value of all these items is called Gross Estate.
Deductions on the gross estate have to next be calculated. These take the form of paying off mortgage balance, or estate administration fees or payments made to an attorney or any outstanding dues for purchases which form part of the estate.
What remains after deductions is the net value of the property. To know whether inheritance tax is due, the net value of the property must be subtracted from the inheritance tax credits. If the net estate is larger, then, the federal income taxes which are due can be determined.
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Federal Tax Inheritance Law
