If you’ve received an inheritance, whether it’s property, money, or investments, your first question or concern is probably related to taxes and whether you’ll end up owing the government after the loss of a loved one. The good news is that most people don’t need to worry about inheritance and estate taxes, but there are factors you need to consider. To help you better understand how to reduce your taxes on an inheritance (or minimize taxes your loved ones pay when you’re preparing a will), our CPA firm, with locations in Durham and Raleigh, is sharing what you need to know.

What Is the Inheritance Tax?

An inheritance tax is a tax paid on any assets an individual inherits after someone dies – so if you inherit $100,000, you would have to pay taxes on that amount. However, most people aren’t affected by this, as the inheritance tax is not a federal tax, it’s a state tax that’s only required in a handful of states. Fortunately, North Carolina does not have an inheritance tax, so if you inherit money, property, or other assets, you will not have to pay a direct tax on them. 

What Is the Estate Tax?

The estate tax is a federal tax that is applied to a person’s assets after their death. However, any estate that is worth less than $11.7 million is exempt from the tax. For estates valued over that amount, the estate tax is paid before any inheritance is distributed or dispersed, so while beneficiaries may not receive a full amount, they will not have to pay a separate tax on it. 

The estate tax ranges between 18 and 40 percent and is dependent on the value of the estate over the exemption limit. For example, if the estate is worth $11,709,999, an 18 percent tax will be levied only against the $9,999. However, assets totalling $12.7 million ($1 million over the exemption limit) or above would be taxed at 40 percent. 

Reducing Estate Taxes

To minimize the amount of tax due on your estate after your death, consider these options: 

  • Spend it before your passing;
  • Provide monetary gifts below the gift tax threshold;
  • Leave it to a qualified charitable organization;
  • Create a trust for your heirs and beneficiaries;

Capital Gains and Interest Tax on Inherited Assets

While you would not pay a tax on the assets themselves, you do need to report any income made from the assets. For example, if you inherit real estate, you will be liable for property taxes as well as paying capital gains if you sell the property. If you inherit cash that you leave in an interest-bearing account, you are liable for reporting any interest income earned on that money, whereas if you inherit stocks or an investment account, you will need to report either capital gains or dividends you receive. 

Protect Your Inheritance with an Accountant Today

To help minimize the taxes owed on either your estate or an inheritance you may receive, reach out to our CPA firm today. With Raleigh and Durham CPAs, we are dedicated to helping our clients create advantageous and ethical strategies to minimize tax payments and help you keep more of your income and property. Schedule a consultation to sit down with an accountant today at (919) 493-2603 or fill out the form below to get started.

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