Inheritance Tax

Prior to beginning, let’s clear up what may be confusing regarding terminology, “estate tax” and “inheritance tax” are diverse terms with legal meanings, which may vary from country to country.
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The terms are occasionally used interchangeably, and you may even hear a television commentator refer to them as a “death tax”. The definition of inheritance tax, for this article, is generally accurate in the United States.Inheritance Tax 2015

Although it may seem like semantics, there is a difference between estate tax and inheritance tax. Estate tax, which has nothing to do with the person who inherits the assets, is a tax that is based on the net value of the property owned by the deceased and paid to the federal government. Whereas, inheritance tax is charged against the shares of certain beneficiaries who inherit an estate, and is paid to the state of the deceased.

Inheritance rates generally vary depending on the state, but inheritance taxes incline to be set on a progressive scale.

The more valuable an estate is the higher the tax rate appears to be the general rule. The tax bracket for inheritance tax depends up the person’s relationship to the jobdeceased; however, surviving spouses are exempt from paying an inheritance tax. A person must also keep in mind that state inheritance tax laws do change.
Inheritance tax transpires after the heirs receive their payouts from their deceased relative. This tax is based on the amount received and is paid by the heir.

Inheritance taxes are levied by the state, which means in many cases an estate can be taxed twice – first by the federal estate tax, then by the state inheritance tax. Inheritance tax is based on many things: cash, accounts, real estate, stocks and bonds, business interests, and valuable goods such as cars, boats, art pieces and rare collections. It is the responsibility of an appraiser to determine the fair market value of everything in order to obtain the taxable value of the estate.

As stated earlier, remember that state tax laws do change. Pennsylvania has the following tax rates: 4.5 percent for lineal descendants, 12 percent for siblings, and 15 percent for anyone else that is an heir. Indiana, however, divides heirs into three classes.

Each class has a different tax rate schedule and exemption: Class A ($100,000 exemption): direct ancestor or descendant, stepchild, direct descendant of stepchild (stepchild does not need to be adopted), Class B ($500 exemption): sibling (brother or sister), descendant of sibling, spouse, widow or widower of your child, Class C ($100 exemption): anyone else, besides your spouse.

There are only six states that implement an inheritance tax. The states that still impose the inheritance tax include: Indiana (retroactively repealed effective January 1, 2013), Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Although you do not live in any of these states you still receive a tax bill, because if the deceased lived in one of these states the state will collect tax from you.

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