Which Six States Impose an Inheritance Tax?
In the United States, the tax landscape varies significantly from one state to another. While many states have embraced estate and inheritance tax exemptions, others still impose these taxes on certain individuals. As of now, only six states in the U.S. impose an inheritance tax, which means that if you inherit property or assets from someone who resides in these states, you may be required to pay taxes on the inherited amount. Let’s take a closer look at these six states and how their inheritance tax laws work.
1. Iowa
Iowa is one of the states that impose an inheritance tax. This tax is levied on both residents and non-residents who inherit property or assets from an Iowa resident. The tax rate varies depending on the relationship between the heir and the deceased, with closer relatives paying a lower rate. The tax is calculated based on the fair market value of the inherited assets, minus any applicable deductions.
2. Kentucky
Kentucky also has an inheritance tax in place. Like Iowa, this tax affects both residents and non-residents inheriting property from a Kentucky resident. The tax rate varies based on the relationship between the heir and the deceased, with a sliding scale ranging from 0% to 30%. Certain types of property, such as retirement accounts and life insurance policies, are exempt from the tax.
3. Maryland
Maryland is another state that imposes an inheritance tax. The tax is applicable to both residents and non-residents inheriting property from a Maryland resident. The tax rate also varies based on the relationship between the heir and the deceased, with rates ranging from 0% to 16%. In addition to the inheritance tax, Maryland also has an estate tax, which is levied on the deceased’s estate.
4. New Jersey
New Jersey is one of the few states with an inheritance tax that affects all residents and non-residents inheriting property from a New Jersey resident. The tax rate in New Jersey is a flat 16% for all inheritances, regardless of the relationship between the heir and the deceased. However, certain types of property, such as retirement accounts and life insurance policies, are exempt from the tax.
5. Pennsylvania
Pennsylvania has an inheritance tax that is imposed on both residents and non-residents inheriting property from a Pennsylvania resident. The tax rate varies based on the relationship between the heir and the deceased, with rates ranging from 0% to 15%. The tax is calculated based on the fair market value of the inherited assets, minus any applicable deductions.
6. Tennessee
Tennessee is the latest state to impose an inheritance tax, starting in 2020. This tax applies to residents and non-residents inheriting property from a Tennessee resident. The tax rate is a flat 9% for all inheritances, regardless of the relationship between the heir and the deceased. Certain types of property, such as retirement accounts and life insurance policies, are exempt from the tax.
Understanding the inheritance tax laws in these six states is crucial for individuals who may be affected by these taxes. Planning and consulting with a tax professional can help mitigate the impact of these taxes on your inheritance.
