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Understanding Inheritance Tax: What You Need to Know in 2024

Inheritance tax, also known as “death” tax, applies to assets that other people inherit when you die. According to the IRSis a tax “on your right to transfer assets at the time of your death.”

In 2024, the federal estate tax will range from 18% to 40%, depending on how much the value of the estate exceeds the current exemption limit of $13.61 million.

In addition to the federal tax, 12 states, including New York, have their own inheritance taxes.

CNBC Select explains what you need to know about inheritance tax, who pays it and how it can affect your financial planning.

What are inheritance taxes?

He inheritance tax is paid by the beneficiary, while the estate tax, or inheritance tax, is paid from the estate of the deceased before the remaining money, property or other assets are distributed.

If you are the executor of an estate, you will need to file an estate tax return. Generally, the value of assets is determined by their fair market value, not by what someone paid for them.

The unlimited spousal deduction means that surviving spouses are generally exempt from federal estate tax.

Yes isAre you planning your estate or have questions? specific to inheritance tax, you can contact a financial professional.

Is there a federal inheritance tax?

Yes, there is a federal inheritance tax. It ranges from 18% to 40%, depending on the portion of the estate that exceeds $13.61 million, which is the current exclusion limit.

If you die with an estate of $14.61 million, for example, your estate will be taxed on $1 million.

Normally, payment must be made within nine months of the person’s death, although the executor of an estate may request a six-month extension.

The Tax Cuts and Jobs Act of 2017 temporarily doubled the estate tax exclusion limit. However, if Congress does not act, the limit will return to $5 million (indexed for inflation) in early 2026.

Who has to pay inheritance tax in New York?

The estate tax in New York ranges from 3.06% to 16% and applies to estates worth more than $6.94 million.

Can I avoid paying inheritance tax?

Although only surviving spouses are exempt from inheritance tax, there are other ways to minimize its financial impact.

Charitable donations

If you leave assets to a qualifying charity, that amount is deducted from your gross estate before taxes.

If you want to reduce the size of your taxable estate, the easiest way to do so is to distribute your assets while you are still alive.

In 2024, you can donate up to $18,000 per individual without having to pay federal tax on gifts and without it counting toward his lifetime gift exemption of $13.61 million. (Married couples can jointly donate up to $36,000 tax-free.)

Irrevocable trusts
And irrevocable trustand transfers control of an asset from the grantor to the beneficiary, protecting it from creditors and reducing the value of the grantor’s total estate.

Although rules vary by state, irrevocable trusts typically cannot be amended, modified, or terminated without the consent of the beneficiary.

Planes 529

Established in 1996, the planes 529 They are state-sponsored investment accounts that offer tax-free earnings and withdrawals for educational expenses. They are excluded from the taxable estate, but if the contribution exceeds $18,000 per year, it may be subject to gift tax.

States typically set contribution limits per beneficiary, which can range from $300,000 y $550,000.

More than half of states offer tax deductions or credits when contributing to a 529 plan, although in most cases you must contribute to a plan within the state to receive the tax relief.

Although most Americans will not have to pay estate taxes, they can have serious implications for those who do. If you believe your estate is large enough for state or federal estate tax to apply, you should consult with a financial expert to see how you can limit your tax liability.

It is article was originally published in English by Ryley Amond for our sister network CNBC.com. on CNBC Select. For more from CNBC go here.

2024-02-23 19:32:17
#inheritance #tax #pay #York

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