What Are The Rules Of Inheritance Taxes?

A handful of states have inheritance tax rules related to an inheritance received from a deceased person’s estate. There is no inheritance tax on the federal level that is levied by the Internal Revenue Service (IRS). The “inheritance tax” on the federal level is properly referred to as the estate tax and falls under the federal estate tax laws. The rules on estate taxes include determining the amount of tax liability and filing a return with the IRS.

Determining Amount of Estate Tax

The amount of tax due on an inheritance depends on the actual amount received. This should not be viewed in terms of cash but rather property, of which cash is a component. Property is any asset of determinable value that is received including cash, real estate, homes, collectibles and jewelry. A fair market assessment in done on the property to determine the total value of the estate that is being passed on to an heir or beneficiary. This can range from 18 percent on amounts under $10,000 to 55 percent on amounts exceeding $2,000,000 in value.

Reporting Estate Taxes to IRS

A recipient of a distribution for an estate must file Form 760 with the IRS in order to determine the taxable amount due on the assets received. The form allows the recipient to deduct federal gift taxes and other exempt amounts that are excludable from the gross estate in order to determine the net estate value that is subject to taxation.