Do You Pay Taxes on Your Inheritance in Florida?
Only a few states in the United States impose an inheritance tax (or estate tax). But Florida is not one of those states. Beneficiaries and heirs do not pay income tax on assets or monies acquired from inheritance because Florida does not have its own (non-federal) inheritance tax, and inherited property does not count as income when filing a federal income tax.
Nevertheless, there are still some income tax rules that you should be aware of when you receive an inheritance.
Federal Taxes on Inheritances
Although Florida does not impose its own estate tax, the federal government does. All United States Citizens must pay a federal estate tax only if the entire estate exceeds the amount of $12.06 million (as of 2022). And any tax incurred is paid from the estate or trust, not the beneficiaries. Since only very wealthy estates incur the federal estate tax, few estates or executors need worry about this tax.
Estate Tax Considerations and Exceptions
In the case that an estate must pay federal estate taxes, it is usually not up to the heirs or beneficiaries to actually pay the tax, but rather, the executor or successor trustee.
Furthermore, there are some situations in which Florida beneficiaries may have to pay some form of tax on an inheritance including:
- The sale of an inherited asset.
No taxes apply if you receive the property directly from a trust or estate. But if you sell a property that you inherited after its value has increased, you may have to pay taxes on the amount that the property has increased after you inherited it. For example, if you inherit a house worth $200,000.00 then its value goes up, and you sell it for $250,000.00 then $50,000.00 from the sale will incur a capital gains tax.
- Beneficiaries receive income from the estate.
If beneficiaries receive income from an estate during the probate period (before the estate is officially transferred to them), then that income will be taxed. For example, if you collect rent from the tenants of a property you inherit before the property officially passes to your name, then the income made from the rent will be taxed.
- The inheritance is not income.
This one is best explained in an example. If your mom leaves you a $50,000.00 life insurance policy, the $50,000.00 is not taxable income. However, if the policy earns any income while it is being transferred to you, or before you are able to claim it, then that income will be taxable – usually the taxes incurred in this case are minimal if you claim the policy quickly.
- Withdrawals from retirement accounts.
Since the deceased would have incurred taxes when withdrawing funds from IRAs, annuities, 401Ks, or other retirement plans, it stands to reason that beneficiaries incur the same income taxes on such withdrawals. Taxes may also apply to some pension plans and investment accounts. However, withdrawals from Roth IRAs are not taxed after someone’s death. It is best to consult with a probate attorney before making withdrawals from any retirement accounts owned by a decedent.
- Inheritance of an estate from a non-U.S. citizen.
Taxes can get complicated if the person inheriting an estate is not a U.S. citizen, or if the decedent is not a U.S. citizen. If this is the case, it is best to consult with an estate planning attorney at Easy Estate Probate to discuss your tax planning options.
It’s never too early to start planning your taxes and estate. Contact us for a consultation to discuss your options.