What Is an Estate or Inheritance Tax?

by Shanika Chapman ; Updated July 27, 2017

The estate and inheritance tax are often misinterpreted as being the same tax, commonly referred to as the "death tax." The estate tax is a federal tax on an estate worth more than $2 million (increased to $3.5 million for 2009). An inheritance tax is a state tax on the portion inherited by the individual. Some states do not impose an inheritance tax.

Estate Tax Deductions

When you die, there are a number of deductions that can be applied to lower your estate and help avoid taxes. The deductions include a marital deduction, charitable deduction, mortgages and debt, estate administrative expenses and losses during administration.

Progressive Taxation

The estate tax is progressive, beginning at 18 percent, with the highest tax at 45 percent.

2010

In 2010, the estate tax will be repealed, although it will return in 2011.

Inheritance Tax

There are 11 states that collect inheritance tax: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. The inheritance taxes are likely to be lower when a close family member inherits the estate. A spouse does not pay an inheritance tax.

Inheritance Tax Deductions

Each state’s inheritance tax requirements, rates and deductions vary. Check with your state.

About the Author

Shanika Chapman has been writing business-related articles since 2009. She holds a Bachelor of Science in social science from the University of Maryland University College. Chapman also served for four years in the Air Force and has run a successful business since 2008.