Does the Federal or State Government Tax Inheritance?


Quick Answer

Inheritance tax is levied by state governments, according to TurboTax. Inheritance tax is different from estate tax, which is levied by the federal government. As of 2015, only New Jersey, Maryland, Nebraska, Iowa, Kentucky and Pennsylvania have an inheritance tax, reports The Tax Foundation.

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Full Answer

Inheritance tax is paid to the state by an individual who receives property or money from the estate of a deceased person, and some exemptions are available depending on the inheritor's relationship to the deceased, states TurboTax. Inheritance tax is imposed after the estate's executor divides and distributes the deceased person's assets to the beneficiaries.

Inheritance tax differs from estate tax in that estate tax is collected by the federal government and levied based on the total value of all assets from the deceased person's estate, explains TurboTax. Estate tax is paid before assets are divided between beneficiaries. Information on which states collect inheritance and estate taxes is available from The Tax Foundation.

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