What Is the Federal Tax Imposed Upon Inheritance?


Quick Answer

The federal government imposes no inheritance tax, although it levies an estate tax on the decedent's property, reports Bankrate. Some states impose inheritance taxes, and some impose both inheritance and estate taxes. Decedents have the ability to specify in their wills that the estate's assets should cover inheritance taxes.

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What Is the Federal Tax Imposed Upon Inheritance?
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Full Answer

Estate taxes are imposed on the sum of the property before it is distributed, whereas inheritance taxes are imposed individually on each beneficiary after the estate is distributed, explains Bankrate. The gross estate includes the fair market value of all the assets the decedent owns fully or in part at the time of death, including cash, securities, real estate, trusts, annuities, insurance and business interests, according to the IRS. From the gross estate, deductions such as fees for the administration of the estate, mortgages, other debts and property the decedent passes on to qualifying charities or the surviving spouse are taken. Qualifying family owned farms and businesses receive further deductions.

The gross estate minus the allowable deductions equals the taxable estate, according to the IRS. Once the net amount of the taxable estate is calculated, the value of lifetime taxable gifts made after 1977 is added to the total. Federal estate tax returns do not have to be filed for estates below a certain value. As of 2015, a tax filing is necessary for gross assets and lifetime taxable gifts that total over $5.34 million.

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