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Since you are required to report just about any source of income to the IRS, it is logical to assume that an inheritance would be taxable income. In fact, this is not the case. You do not have to report a direct inheritance on your tax returns, and this would apply to life insurance proceeds as well.
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Under these circumstances, you would get a step up in basis. The clock would begin anew as it were when you acquire the assets. However, going forward, if the assets continue to appreciate, you would be responsible for capital gains taxes if and when you realize a gain.
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There is a federal estate tax in place, and it carries a very hefty 40 percent maximum rate. That’s the bad news, but the good news is that your family probably won’t have to pay it, because it is only a factor for very wealthy individuals.
The federal estate tax is applicable on the portion of an estate that exceeds the amount of the credit or exclusion. We are not going to share an exact figure here because it is adjusted on an ongoing basis to account for inflation, but suffice to say that it is in excess of $11 million.
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No, there is an unlimited marital deduction that you can use to leave any amount of property to your spouse free of taxation. This is assuming that you are married to an American citizen.
We should point out the fact that the estate tax exclusion is portable between spouses. This means that a surviving spouse would be able to use the exclusion that was allotted to their deceased spouse.
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The estate tax was put into place in 1916, and at that time, there was no gift tax, so people did divest themselves of assets while they were still alive. In 1924, a gift tax was installed, but it was repealed in 1926.
Six years later, the gift tax came back in full force, and it is been in place since then. The two taxes are unified, so the exclusion is a unified exclusion that applies to lifetime gifts along with postmortem asset transfers.
In addition to the unified gift and estate tax exclusion, there is an annual exclusion that allows you to give as much is $15,000 to any number of gift recipients each year tax-free.
There is an educational exclusion that you can use to pay school tuition for students free of taxation. It should be noted that this is a tuition only exemption that does not apply to books, fees, and living expenses. However, you could use your annual exclusion to provide additional support.
If you want to pay medical bills for others, you do not have to worry about the gift tax punishing you for your generosity. This exemption extends to the purchase of health care insurance.
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Yes, there is a state estate tax. The exclusion amount is about half of the federal estate tax exclusion, so you could could face state-level exposure even if you are exempt from the federal tax.
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Our doors are open if you would like to put an estate plan in place or adjust your existing plan. Personalized attention is key, because each situation is different, and that is exactly what you will get when you engage our firm.
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