The taxes from assets left in will can often feel like navigating a labyrinth. You’ve got your inheritance, but now what? Here’s the scoop – Uncle Sam doesn’t let anything slide by that easily.
Picture this: Aunt Martha left you her beloved beach house. Glorious mornings with coffee overlooking the Atlantic, right? Not so fast. First, you’ve got to deal with potential estate and inheritance taxes. Estate tax? That kicks in before you even get your hands on that key. If Aunt Martha’s total assets cross a certain threshold, the federal government slices a chunky pie from the estate beforehand. Federally speaking, the 2023 estate tax exemption is around $12.92 million. Unless Aunt Martha had a secret underground gold mine, you might dodge this bullet.
But wait, some states have their own flavor of estate taxes with lower exemptions. Depending on where Martha resided or where that beach house sits, state-level estate taxes might come knocking. And boy, do they vary! For instance, Oregon and Massachusetts start taxing estates over a million bucks.
Don’t put your feet up yet. There’s the joyful inheritance tax – another layer depending on the state. Seven states have this fun-depriving rule, including Pennsylvania and New Jersey. With inheritance tax, it’s about who you are to the deceased. Spouses often catch a break, while distant relatives might get whacked with higher rates. Thanks, Pennsylvania!
Now, let’s switch gears to a different scenario. Aunt Martha left you a portfolio stuffed with stocks and bonds. The hitch? Capital gains tax. Suppose she bought Apple stocks for $50 each back in the day, and now they’re worth $200. If she sold them, that’s a $150 profit per stock subject to capital gains tax. But here’s something to light up the day: the step-up in basis rule. The valuation resets to market value at the time of inheritance.
