Is there an Inheritance Tax in Texas?

You may not have acres of estate, but there would be some property that you would leave to your family as an inheritance. While living in Texas, you must be worried and confused about your loved ones paying an inheritance tax.

Most people are uninformed of the matters related to estate planning and taxes applicable, and 60% of Americans don’t have any estate preparation.

Texas is among those states that do not impose an inheritance tax. The state’s laws regarding inheritance are evident and straightforward. However, the residents can be subjected to certain other federal taxes.

If you are also a resident of Texas and the case is similar to you, don’t go anywhere and keep on reading to know the important information about Texas’s inheritance taxes.

For people with a large estate, we advise you to consult an attorney to understand the complicated details.

What is inheritance tax?

It is a tax that people are obliged to pay to their state when receiving an inheritance from someone. It is not obligated in every state and applies only to six states that levy inheritance tax. The six states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. 

The tax is applicable on real estate, money, investments, or any valuable thing. It is applicable whether received through will, deed, or trust, or intestate law of succession. Therefore, the inheritance law is not affected by where the receiver lives; it is affected only by the deceased’s location or the location of the property that someone inherits.

How is tax liability determined for inheritance tax?

The inheritance tax liability is determined by the percentage of the inheritance’s fair market value, and these percentages vary for states. Every state has its own tax rates with multiple categories of beneficiaries. The rate is determined by the degree of closeness with the descendent.

Surviving spouses are exempted from the tax, and sometimes children and parents are also exempted. The closely related persons are charged at the lowest rates, whereas the unrelated persons are charged at the highest rates. Moreover, there is no inheritance tax liability if the inheritance worth is less than $500.

Inheritance tax in texas——Yes or No?

Individual income tax return

Texas is a tax-friendly state. In Texas, no inheritance taxes are imposed. The state had canceled the inheritance and estate taxes from 9/1/2015 onwards. Moreover, the state has no state income tax, state estate tax, and gift tax.

Even so, there is a possibility that other states’ inheritance taxes apply to you if the deceased lived in the state that imposes an inheritance tax.

To make it clear, take an example. If the deceased lived in New Jersey and left some property for you, you owe inheritance tax to that state and may have to pay the taxes.

There are other taxes that you may have to file on behalf of the deceased while living in Texas:

  1. Individual federal income tax returns or final income tax return. After the individual’s death, each of the final taxes is due by the end of the year.
  2. Federal estate or trust income tax return. It is due by April 15 in the following year of a person’s death.
  3. Federal estate tax return. It is due within 9 months after the person dies. A 6-month extension can be granted if asked before ending 9-months.

Bottom line

In Texas, no state inheritance and estate taxes are imposed, but if a person dies without a will, his assets are divided by the state’s intestate succession law. Through intestate succession law, those assets are distributed that would typically be covered within a will.

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