As of publication, only six states still impose an inheritance tax. Even if you live in a different state, you may still be vulnerable to the tax if the decedent lived in one of those six states, or you inherit property there. The amount you can inherit tax-free in a given year depends on state law, and your relationship with the deceased.
As of publication, if the deceased's net estate is worth $25,000 or less, you and the other heirs pay no state inheritance tax. It doesn't matter whether that amount goes to one person or several. The net estate is what's left after the executor pays off funeral costs, the deceased's remaining taxes and debts and other expenses.
Some individuals are completely exempt from inheritance tax no matter how much they inherit. Those include spouses, parents, grandparents, children and grandchildren.
Kentucky breaks heirs down into three classes:
- A spouse, children, grandchildren, parents and siblings pay zero inheritance tax.
- Nieces and nephews, aunts and uncles, sons-in-law and daughters-in-law plus great-grandchildren can inherit up to $1,000 without paying tax.
- All other heirs can receive up to $500 before the tax kicks in.
Maryland's tax is 10 percent of the value of the estate, but it exempts inheritances of less than $1,000. There may be no inheritance tax if you inherit the deceased's personal home. And again, close relatives such as spouses, children, parents, grandparents and siblings get to inherit tax-free.
If you're the spouse of the deceased, Nebraska won't hit you with inheritance tax. Close relatives -- including parents, children, grandchildren and siblings -- can inherit up to $40,000 without owing tax. For more distant relatives such as aunts, uncles, nieces and nephews the limit is $15,000. Other heirs have to pay if their inheritance tops $10,000.
New Jersey doesn't tax the inheritance of a spouse, parent, child or grandchild. The decedent's siblings and the spouse or civil-union partner of the decedent's child get a $25,000 exemption. Other individual beneficiaries can exempt a maximum $500 from the tax.
Pennsylvania taxes everything in a bequest, unless the heir falls into one of the exempt classes. The state has fewer exemptions than other states. Only spouses and parents who inherit from a child under 21 can avoid the tax completely.
Tax laws change constantly. Indiana, for instance, had an inheritance tax until 2013, when the state repealed it. Talk with the probate court or an attorney, or visit the state tax authority's website, to get the latest information.