Questions About Inheritance Tax

by Walter Johnson

Inheritance, or estate, taxes can be very complex. Issues such as splitting or proper deductions can be difficult and can cause problems if not dealt with properly. An inheritance is a gift given after the death of the estate's owners. An estate is the value of the property that the owner controls at the time of his death.

What is a Gross Estate?

This is the full value of the property the deceased person owns at the time of her death prior to all deductions. It also includes all available life insurance proceeds and all annuities that are due. If the deceased has transferred property over the past three years, then that, too, is part of the estate. Transferred property might include such things as giving or renting property to a corporation the deceased owns as a means of getting tax benefits.

What Can Be Deducted from an Estate?

Funeral expenses are deducted in full. Any debts owed by the deceased is also deductible. Charitable gifts made from estate funds can also be written off (the "charitable deduction"), as is the value of the property given to the surviving spouse (the "marital deduction").

What Are the basics of a Gift Tax Return?

This is closely related to inheritance taxes since an inheritance is a "gift" according to the IRS. Use Form 709 for the gift tax return. Gifts are not taxed if they are under $13,000. This is called the "annual exclusion." However, there is such a thing as "gift splitting" that gives a substantial tax break. If the beneficiaries of an estate are split (not going to just one person), then the exclusion goes up to $26,000. In other words, if a gift is given to one person, the exclusion is $13,000. If going to more than one, it is $26,000. This means that if an inheritance goes to two people, each getting $10,000, then the gift is tax free.

Do I Need to Pay Income Tax on the Value of an Estate?

Maybe. It is a good idea to file if the annual income of the estate is over $600 per year and, in general, if the estate's worth is more than the filing requirement for the year of the owner's death. For example, according to the IRS, if an estate owner died in 2009, the filing requirement would be $3.5 million. If the estate was worth $1 million, then no estate tax return would have to be filed. A tax form must be filled out for the estate under all circumstances if the beneficiary is a nonresident alien, that is, a noncitizen living in another country.

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About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."

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