Is inherited money taxable in Illinois? This is a common question among individuals who have recently received an inheritance. Understanding the tax implications of inherited money is crucial to ensure that you are not caught off guard by unexpected tax liabilities. In this article, we will explore the tax laws in Illinois regarding inherited money and provide you with the necessary information to make informed decisions.
In Illinois, inherited money is generally not subject to income tax. This means that any money or assets you receive from a deceased individual, such as cash, stocks, or real estate, are not taxed at the state level. This rule applies to both direct inheritances and life insurance proceeds, as long as the policy was not paid for with after-tax dollars.
However, it is important to note that inherited money may still be subject to other taxes, such as estate taxes or inheritance taxes. Estate taxes are imposed on the total value of the deceased person’s estate, while inheritance taxes are imposed on the amount received by each heir. The good news is that Illinois does not have an estate tax, but it does have an inheritance tax.
The Illinois inheritance tax is a flat rate tax that applies to certain individuals who inherit money or property from a deceased person who was a resident of Illinois or who owned property in the state at the time of their death. The tax rate varies depending on the relationship between the heir and the deceased individual. For example, the tax rate for a surviving spouse is 0%, while the rate for a child or grandchild is 3.75%.
It is essential to determine whether the deceased person was a resident of Illinois or owned property in the state to understand the potential tax liability. If the deceased person was not a resident of Illinois or did not own property in the state, then the inheritance tax does not apply.
Another important factor to consider is the federal estate tax. While Illinois does not have an estate tax, the federal government does impose an estate tax on estates valued over a certain threshold. As of 2021, the federal estate tax exemption is $11.7 million for individuals and $23.4 million for married couples. Inherited money that is subject to the federal estate tax may be taxed at a rate of up to 40%.
To summarize, inherited money in Illinois is generally not subject to state income tax. However, it may be subject to the Illinois inheritance tax and the federal estate tax, depending on the circumstances. It is advisable to consult with a tax professional or an estate planning attorney to ensure that you understand the tax implications of your inheritance and take appropriate steps to minimize any potential tax liabilities.
