Is Your Inheritance Taxable?
May 23, 2023
According to data from the U.S. Bureau of Labor Statistics, roughly 30% of American households can expect to receive some sort of wealth transfer (inheritance) in their lifetime. Understandably, those who receive this inheritance will want to know how this new wealth will affect their lives, and central to this is being able to answer the question, “Is my inheritance taxable?” since taxes could reduce the total amount you receive.
If you’ve recently inherited a sum of money or expect to receive an inheritance soon and want to know more about how taxes will affect it, call the Law Office of Rodney Gould to speak with an estate planning attorney. From his offices in Los Angeles, California, Rodney Gould is able to represent clients in Sherman Oaks, Studio City, West Hollywood, and Beverly Hills.
What Is an Inheritance Tax?
It seems that nearly all forms of income and wealth are taxed in some way, whether it’s at the state level, the federal level, or both. And, depending on where you live, this could be true for inheritance income as well. Essentially, an inheritance tax is levied by a state directly on the value of inherited assets. There is no inheritance tax at the federal level. This tax is payable by the individual who receives the assets, not by the estate that distributed them. These taxes are quite rare and when they do exist, they typically only apply to amounts that exceed a predetermined exception amount.
Inheritance Tax vs. Estate Tax
Many people frequently confuse an inheritance tax with an estate tax. Though they are quite similar in the fact that they’re both based on the value of a deceased person’s estate, an estate tax is paid by the estate while an inheritance tax is paid by the heir of the estate. Additionally, estate taxes can exist at both the state and federal levels, while only a handful of states impose an inheritance tax. There is currently no California estate tax.
Will I Have to Pay Inheritance Tax in California?
If you’re living in the Los Angeles area and know you’ll be heir to an estate, you’ll naturally want to know, “Does California have an inheritance tax?” The short answer is no, California does not have an inheritance tax. In fact, there are only six states in the country that do impose this kind of tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Some California residents may want to know whether they’ll owe inheritance tax if they receive property from a non-California resident, but this is best discussed with your attorney. In the states that do levy this tax, there are some exceptions depending on the total value of the assets and your relationship to the deceased that may apply to you.
Other Taxes to Consider as a Beneficiary
Just because there are no inheritance taxes in California doesn’t mean you won’t have any taxes to consider as a beneficiary. These could include federal estate taxes or capital gains taxes. However, the current federal estate tax only applies to estates valued at over $12.92 million. A capital gains tax may apply to you, but only if you go on to sell the assets you’ve inherited.
What If I Sell the Home I Inherited?
If you receive a home as part of your inheritance and then sell that home, you may owe a capital gains tax. This will vary depending on the value of the home and how long you’ve held onto it. For example, if you’ve owned the home for less than 365 days, your tax rate will be different than if you’ve owned it for over 365. It’s essential to speak with a qualified attorney before selling to ensure you’re minimizing your tax burden.
Get the Answers You Need
If you’d like to speak with an experienced attorney about how to make the most of your inheritance and are in the Los Angeles, California, area, reach out to the Law Office of Rodney Gould to schedule a consultation.