Even though property tax and estate tax are commonly mistaken often, they are two different taxes. The estate tax doesn’t apply to everyone who owns a property. In the United States, people pay estate tax on the transfer of the estate of a deceased person.
If you’re inherited a property, you are likely to pay estate tax. On the other hand, everyone who owns a property in the United States must pay property tax. While property tax is a fixed rate set by the state, there is a lot that goes into estate tax.
For the most part, if the estate value is less than the state exemption amount, the person won’t pay estate tax. Every state has its own exemption rate. For example, the New York exemption is $5,850,000 which is the highest while Oregon exemption is $1,000,000. As of now, the exemptions are as stated in the table below.
As of 2020, no state other than the ones listed above imposes an estate tax. Similar to the estate tax, there is also the inheritance tax. The inheritance tax is paid by heirs, not the estate. The tax is levied on the nonresident’s or the resident’s in-state property at the time of death. Unlike estate tax, the inheritance tax depends on the heir’s relationship to the deceased. For example, if the heir is the surviving spouse, they are going to be exempt in all states. While surviving spouses are exempt in all states, the following states also exempt direct descendants.
- New Jersey
On top of the state estate tax, there is the federal estate tax. Prior to Tax Cuts and Jobs Act of 2017, the federal estate tax was $5,49. The new tax law made it $11.2 million. With that being said, the federal estate tax exemption is much higher meaning most people won’t pay estate tax for inherited properties.