Pennsylvania Inheritance Tax

If you're about to inherit property from someone, the good news is that the federal government has no inheritance tax. But the bad news is that Pennsylvania does. It's one of only six states imposing such a tax, including Iowa, Kentucky, Maryland, Nebraska, and New Jersey. However, Iowa is looking to phase out its inheritance tax. An inheritance tax attorney or estate attorney can offer more insight and work with you to ensure you get the maximum benefit.

Pennsylvania's tax applies to any estate regardless of size. It considers the estate's size and the beneficiary's relationship to the decedent—the closer your relationship to the decedent, the less your tax liability. So, let's take a look at those breakdowns.

Relationships with No Tax Required

Individuals close to the decedent have no tax obligation. Those individuals include:

  • The surviving spouse
  • Parents, adoptive parents, or stepparents who inherit from a deceased child 21 years of age or younger
  • Charitable organizations and government entities

For estates of decedents dying after June 30, 2012, farmland is exempt from inheritance tax. However, two conditions apply. First, family members inherit the land. Second, the land remains in use for agriculture for a minimum of seven years.

In addition, family-owned businesses with fewer than 50 employees and assets valued at less than $5 million require no inheritance tax. The one caveat is that the business exists for five years and operates for another seven years after the inheritance. Finally, Pennsylvania exempts any life insurance payments regardless of whether they pass to the estate or directly to the beneficiary.

If you have questions on whether you owe taxes, talk with an inheritance tax attorney.

Relationships Requiring an Inheritance Tax Payment

Immediate family members pay 4.5 percent inheritance tax. However, siblings pay 12 percent if related by blood or by adoption. That includes half-brothers and sisters. An inheritance tax attorney can clarify the rate for you.

Immediate family members include:

  • Children and their descendants and step-descendants
  • Parents and grandparents
  • Child's spouse providing that spouse has not remarried

All other individuals that inherit property pay 15 percent. Those individuals include aunts, uncles, nieces, nephews, cousins, brothers-in-law, sisters-in-law, friends, etc.

Inheritance tax payments are due upon the death of the decedent. Furthermore, they become delinquent nine months after the individual's death. If you pay inheritance tax within three months of the decedent's death, you benefit from a five 5 percent discount.

Note that you may deduct expenses. For example, deductions apply to fees associated with estate administration like executor's fees, funeral expenses, etc. In addition, you can deduct decedent debts like credit card bills, mortgages, and income tax payments.

If you have questions about the amount of inheritance tax due, if any, talk to an inheritance tax attorney or an estate attorney. You can also get more information on PA inheritance tax here.

Property Subject to Inheritance Tax

All real property and tangible property in Pennsylvania require a tax payment. Examples include vehicles, furnishings, jewelry, etc. In addition, inheritance tax applies to the intangible property regardless of location -- stocks, bonds, checking accounts, savings accounts, loans, and others. If the decedent resides outside Pennsylvania, only the property in Pennsylvania at the time of death is considered taxable. The property value at the time of death determines the value for inheritance tax purposes.

All real property and all tangible personal property of a resident decedent, including but not limited to cash, automobiles, furniture, antiques, jewelry, etc., located in Pennsylvania at the time of the decedent's death is taxable. All intangible property of a resident decedent, including stocks, bonds, bank accounts, loans receivable, etc., is also taxable regardless of its location at the time of the decedent's death. However, non-resident intangible property is exempt. Talk to a tax inheritance attorney for any questions. You can also consult with an estate planning lawyer.

Jointly Held Property

Moreover, inheritance tax applies to a jointly owned property, excluding property between husband and wife. Tax relates to the decedent's fractional interest. For example, if the property value is $300,000 and the decedent owned 50 percent of that property, the taxable value is $150,000. Furthermore, if the joint interest happened within a year of death, the entire property value gets taxed. It's critical to note the property is subject to tax even if the owner was in name only.

Unlike federal law, Pennsylvania uses a one-year look-back for the Pennsylvania inheritance tax. All gifts made within the year before the decedent's death require an inheritance tax payment, but Pennsylvania provides a $3,000.00 per donee exemption for these gifts.

Talk to an Inheritance Tax Attorney

If you have questions about the amount of inheritance tax you owe or whether you even owe tax, talk to one of our inheritance tax attorneys in our Doylestown and Norristown, PA law offices. Our estate attorneys can also support you with living wills, wills, power of attorney, and more. So, get in touch today.

Inheritance Tax Attorneys

Gilbert P. High Jr.

Gilbert P. High Jr. | municipal and estates Attorney | High Swartz Attorneys at Law

Municipal Law Attorney Gilbert P. High handles land development, zoning litigation, tree law, estate planning, easements, and rights of way.

Renata T. Pabisz

renata t pabisz estate planning attorney at High Swartz attorneys for law

Renata T. Pabisz is an immigration lawyer and estate planning attorney concentrating on probate, estate administration, and elder law in the Philadelphia metro area.

Donald Petrille, Jr.

Donald Petrille, Jr. | Business & Estates Attorney | High Swartz Attorneys at Law

As an attorney, Donald Petrille, Jr. primarily represents businesses as they wrestle with complex legal issues and individuals in estate planning matters.

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