Do I Have to Pay Taxes on What I Inherit?

When a person dies, the decedent's assets and property are often distributed to rightful inheritors using the provisions of the will or the state's intestate succession laws. In some states, beneficiaries and heirs may be required to pay taxes on property, assets, or money received from a deceased loved one's estate. 

Essentially, only estates that are worth at least $12.92 million must pay federal estate taxes. However, there is no inheritance tax in Texas. Nonetheless, any subsequent income or gain from the inherited property or asset will be subject to state taxes when the property is sold. 

Attorney Chelsea Redding is committed to offering experienced legal guidance and trusted advocacy to clients in estate administration and estate taxes-related matters. As a seasoned Texas estate planning attorney, she's available to discuss your unique situation, answer your various question about inheritance and estate taxes, and enlighten you about other taxes to consider. The firm proudly serves clients across Southlake, Tarrant County, and Denton County, Texas. 

What Is an Inheritance Tax?

Inheritance tax can be described as a levy or state tax paid on assets inherited from a deceased person's estate. When a person dies, the beneficiary will be required to pay an inheritance tax on any property, asset, or money received from the estate of the decedent. However, whether you will pay inheritance tax will depend on the state you're living in and the state the deceased person lived. 

Inheritance Tax vs. Estate Tax

Essentially, both inheritance and estate taxes are usually levied on the transfer of assets and property when a person dies. However, the major difference is the person responsible for paying the tax. Inheritance tax is often levied on the beneficiaries and heirs of the decedent's estate. 

Conversely, the estate tax is levied on the deceased person's estate regardless of the inheritors. Thus, the executor or administrator will be responsible for paying estate taxes out of the estate before distributing them to the rightful beneficiaries. 

Will I Have to Pay Inheritance Tax in Texas?

Furthermore, there is no inheritance tax in Texas. Hence, if you live in Texas and you received a property, asset, or money from a deceased loved one (who is a Texas resident), you don't have to pay inheritance tax in Texas. 

However, if the decedent is a non-Texas resident and inheritance taxes apply in the decedent's state, you may need to pay inheritance tax to the state. Therefore, ensure that you check out the laws addressing inheritance taxes in the decedent's state. 

Other Taxes to Consider as a Beneficiary

Here are some other taxes to consider as a beneficiary to an estate: 

Federal Estate Taxes: The federal estate tax, also known as the "death tax," is a tax usually levied on a decedent's estate and assets. In 2023, the federal estate tax only applies to estates worth $12.92 million or more. The tax rate can range from 18% to 40%. 

Capital Gains Taxes: A capital gains tax is a tax levied on the profit received from the sale of an asset held for one year or more. The rate for capital gains tax is 0%, 15% or 20%, depending on the taxable income or property value. 

What If I Sell the Home I Inherited?

In Texas, you're not required to pay taxes on any property or asset inherited from a deceased loved one's estate. However, if you held the property for at least one year before selling, you will need to pay capital gains taxes only on any profit gained on the asset since you inherited it. 

Personal & Professional Legal Guidance

Understanding your inheritance and estate tax obligations after inheriting a property from a deceased loved one's estate is crucial. Attorney Chelsea Redding has devoted her career to guiding clients through the complexities involved in estate taxes. As your legal counsel, she can enlighten you about your tax responsibilities and help calculate the amount of taxes you're required to pay on the inherited property. 

Contact Redding Law Office today to schedule an initial consultation with a reliable estate planning lawyer. Attorney Chelsea Redding can offer you the reliable advocacy and detailed legal guidance you need to make informed decisions in your estate tax matters. The firm proudly serves clients across Southlake, Flower Mound, Colleyville, Keller, Tarrant County, and Denton County, Texas.