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. Talk to an inheritance tax attorney near you for more insight. They'll work with you to ensure you get the maximum benefit.
Pennsylvania's tax applies to any estate regardless of size. However, 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, and second, the land remains used 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 company 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 directly to the estate or 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
- The 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 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 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 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. In addition, all intangible property of a resident decedent, including stocks, bonds, bank accounts, loans receivable, etc., is also taxable regardless of 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. As a result, 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.