When a loved one decreases by, there's usually a lot to take care of – from tough emotions to household chores and more. When you are grieving, you may have to deal with major financial and paperwork issues that arise from an inheritance. If a relative or friend leaves you an inheritance, be it property or money, you may owe inheritance tax. If you want expert advice on inheritance tax, contact us now.
Image Source: Google
However, not everyone has to pay inheritance taxes. Knowing whether you owe property taxes is helpful for planning. And as you prepare your will, learn how you can help beneficiaries avoid taxes on your gift.
What is inheritance tax?
An inheritance tax is a government tax you pay on property or money received after the death of a loved one. As a beneficiary, you are responsible for covering this tax.
Inheritance tax is calculated individually based on what you receive from the benefactor. After the executor divides and distributes the inheritance, inheritance tax is collected.
Inheritance taxes can be as high as 1% or as high as 18% depending on your state and what you have inherited. For example, states may impose a 7 percent property tax on wills of more than $1 million.
If your friend leaves you $3 million in his will, you pay 7 percent tax on the $2 million, which is $140,000. You will report this payment on the inheritance tax form.