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How Does Inheritance Affect Your Federal Taxes
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Possessions acquired during lifetime have been passing down from generation to generation throughout history, a process known as inheritance. Inherited possessions provide us with both sentimental and monetary value.
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However, in this current world, one needs to pay a variety of taxes to the government while inheriting a property. In the US, there are two important federal taxes levied on inherited property. These include federal estate tax and federal inheritance tax.
Federal Estate Tax
A federal estate tax is defined as the tax imposed on the transfer of the “taxable estate” of a deceased person. The federal estate tax is a part of Unified Gift and Estate Tax system in the United States. Estate tax is often confused with inheritance tax. Estate tax is levied on the entire estate of the deceased person. Every U.S citizen or resident of United States has to file a federal estate tax return if his gross estate exceeds $2,000,000 for decedents dying in 2006. Another variation in this system is the gift tax, imposed on transfers of property that occurred during a person’s life.
Estates and gifts given to surviving spouse are usually exempted from any kind of federal tax. In addition, gifts made to charity organizations are also liable for exemption.
Inheritance Tax
This tax is defined as the tax imposed on the heirs who inherit the property from the deceased. In this type of tax, taxable estate is only the share of property that a particular beneficiary has inherited. Tax is imposed only on that share of property. Each beneficiary is responsible for paying his or her own inheritance taxes.
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How Does In Inheritance Effect Your Federal Taxes
