Does Florida Have an Inheritance Tax?
Last Updated: July 03, 2022 • 8 min read
Author: Zach L.
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Florida, a tax-efficient state, does not have an inheritance tax. You may still pay federal estate taxes if your estate meets the maximum established federally.
Generally, the state of Florida is considered one of the most tax-efficient in the United States, making it a haven for many business owners. Talking about inheritance tax (also known as the estate tax), a tax on a deceased person's wealth, Florida does not have an inheritance tax.
This means that the beneficiary of a deceased person who is a Florida resident does not pay tax on the inherited property. Nonetheless, if the deceased person had properties in other states, the beneficiary may have to pay inheritance tax to that state.
This article answers the question, does Florida have an inheritance tax in detail. Read on to understand how the inheritance tax in Florida works.
Florida Inheritance Tax Law
Florida does not impose an inheritance tax on residents. However, Florida residents may have to pay inheritance taxes if they have properties in some states. These states include Nebraska, Maryland, Iowa, New Jersey, Kentucky, and Pennsylvania.
Furthermore, in Florida, heirs, and beneficiaries do not pay income taxes on monies received from an estate. The government does not count inherited property as taxable income. Inherited assets or money are not part of the income tax system. This doesn't exclude inherited real property from property taxes, so if you are unsure what your tax bill will be the tax year you receive an inheritance make sure to talk with your financial advisor and your CPA.
Florida Estate Tax
According to the Internal Revenue Service (IRS), estate tax, also called "death tax", is a tax on your right to transfer property at your death.
Florida used to be an estate tax-paying state. The federal law allowed a federal credit for state death taxes on the federal estate tax return. However, in December 2004, the federal government changed the credit to a deduction for state estate taxes.
This federal change resulted in the abolishment of estate taxes in Florida. Estates of people who died from January 1, 2005, going forward, are no longer subject to estate taxes. This doesn't exempt the personal representative of the estate from completing certain forms to remove the automatic Florida estate tax lien.
Federal Estate Tax
The United States federal government has an estate tax that applies to all its citizens. The U.S. federal inheritance tax, also known as "estate tax," taxes the assets of every resident decedent or a decedent who is a U.S. citizen.
Federal estate taxes only apply to estates worth a certain amount, based on the municipality. The amount of estate tax is determined by multiplying the decedent's assets by a progressive tax rate.
The decedent's properties and assets subject to estate tax, including those owned individually and in a trust, are their "taxable estate." Presently, the federal estate tax rate ranges from 18% to 40%. You can use this table to determine the total amount of tax that your estate could be subject to.
| Tax Rate | Taxable Dollar Amount | Total Tax Owed |
|---|---|---|
| 18% | $0 - $10,000 | 18% of the taxable amount |
| 20% | $10,001 - $20,000 | $1,800 + 20% of anything over $10,000 |
| 22% | $20,001 - $40,000 | $3,800 + 22% of anything over $20,000 |
| 24% | $40,001 - $60,000 | $8,200 + 24% of anything over $40,000 |
| 26% | $60,001 - $80,000 | $13,000 + 26% of anything over $60,000 |
| 28% | $80,001 - $100,000 | $18,200 + 28% of anything over $80,000 |
| 30% | $100,001 - $150,000 | $23,800 + 30% of anything over $100,000 |
| 32% | $150,001 - $250,000 | $38,800 + 32% of anything over $150,000 |
| 34% | $250,001 - $500,000 | $70,800 + 34% of anything over $250,000 |
| 37% | $500,001 - $750,000 | $155,800 + 37% of anything over $500,000 |
| 39% | $750,001 - $1,000,000 | $248,300 + 39% of anything over $750,000 |
| 40% | $1,000,001+ | $345,800 + 40% of anything over $1,000,000 |
Federal Estate Tax Exemption
Federal estate taxes work with a certain estate's value. Each year, the U.S. federal government decides a certain benchmark for estate taxes for inflation. Therefore, the federal estate tax exemption is the amount below which a deceased estate is not subject to taxes.
In 2022, the federal estate tax exemption is $12.06 million. The implication is that if the estate's worth is above $12.06 million at the death of a person, it's subject to the federal estate tax. On the flip side, if the estate's worth is below $12.06 million, then it's not taxed.
Based on the provisions of the federal estate tax law, estate tax exemption may also apply to a decedent's lifetime gifts. The amount of credit used to shield lifetime gifts from taxation is deducted from the credit available at the taxpayer's death.
Federal estate tax exemption also applies to a married couple. The IRS provides the transfer of any unused credit of the deceased spouse to the surviving spouse. In essence, any part of the $12.06 million not used by the decedent can be transferred to the surviving spouse. The carried-over credit is called the Deceased Spousal Unused Exclusion ("DSUE").
To access unused credit, the surviving spouse must file a federal estate tax return known as Form 706 upon the spouse's death. He or she must also properly elect DSUE on the form and file the tax return within nine months after the decedent's death.
Gift Tax in Florida
Florida does not have gift taxes. However, the federal gift tax may apply when Florida residents give large gifts to family members. Gift taxes were abolished in 2004, along with the estate tax.
Normally, the federal government does not consider gift assets as taxable income unless the gift is worth more than $16,000. In this case, the receiver pays a federal gift tax. The IRS excludes gifts between married couples and gifts to nonprofit organizations as taxable gifts.
Nontaxable gifting is an important part of estate planning. If you have many heirs that you want to inherit your estate, consider looking into nontaxable gifting. Let's say between your children and grandchildren there are 10 heirs that you want to inherit your estate. That means every tax year you could be gifting out the following
$16,000 x 10 = $160,000
If you begin gifting out a part of your estate for the last ten years of your life you could have gifted $1.6 million tax-free to your heirs. That is an extreme example but nonetheless provides you with a thought exercise to get the gears turning on how you can lower your taxable portion of your estate and leave your heirs with as much as possible.
Estate Tax Planning
Estate tax planning entails the legal approach to avoid or mitigate transfer taxes such as estate taxes. It's a prudent technique that lets individuals manage their assets properly to ensure that there are little or no tax concerns for their families upon death.
Although Florida doesn't have inheritance taxes, there are certain circumstances where beneficiaries may have to pay inheritance taxes. Assume a beneficiary sells inherited property such as real estate. The funds from the sale may be subject to federal income tax if there's an appreciation in assets' value.
Proper estate tax planning helps to manage this situation using a stepped-up basis. The stepped-up basis "steps up" the property's fair market value to reduce capital gain taxes owed if the property is sold later.
It adjusts the price of the real estate on the date of the decedent's death above its original purchase price so that the beneficiary is taxed on the difference between the sale price and adjusted cost and can greatly reduce capital gains taxes.
Estate Planning requires professional guidance, so it's best to consult a legal advisor that specializes in estate planning for help. They normally provide a free consultation so you can shop around and find the best one for your personal needs.
Final Words
The state of Florida is tax-friendly. Residents can save a reasonable amount of dollars from tax exemptions. While the state government does not impose an inheritance tax, the federal government levies an estate tax on all U.S. citizens, and Florida residents are not exempted.
Also, if a Florida resident owns inherited properties in some states in the United States, they may pay inheritance tax.
