Is Federal Income Tax On Inheritance Increasing?

The federal income tax inheritance or estate tax is set at a maximum rate of 55 percent.  This is on amounts received in inheritance from a deceased person’s estate that is in excess of the amount that is permitted to be deducted from the value of the gross estate value.  This includes any gifts and other exemptions up to $2,000,000.

No Federal Income Tax on Inheritances

It should be stated clearly that there is no federal income tax due on inheritances received.  The amount of proceeds received by beneficiaries and heirs from an estate is only subject to estate taxes on the federal level, not income taxes as these proceeds are not treated as earnings or profits.  Without this clarity, it can be confusing considering what the distribution of estate assets are and leave an impression that these proceeds or distributions are income, which they are not.

Federal Estate Tax Repeal in 2010

The federal estate tax rates are unchanged up to the year 2010 upon which point the amount of tax due on any inheritance received will be 0 percent.  This was done in accordance to the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).  After 2010, pre-EGTRRA federal estate tax levels will be restored, depending on any further action on the part of Congress and the President.


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