Is Your Inheritance Taxable?
Those of us who have had the misfortune of receiving an inheritance from a loved one know how this can bring up many feelings. You can find yourself coping with the loss of someone close to you and would rather have them back than any amount of money they left. On the other hand, receiving an inheritance can provide much-needed financial support that allows us to do things like address debt, purchase a home, or pay for our children to attend college.
All that said, there are also some very practical considerations that come up and questions you may have like, “Is my inheritance taxable?” or, “Does Ohio have an inheritance tax?” If you are looking for reliable answers to this and any other inheritance questions, call our probate and estate planning team at StachlerHarmon Attorneys at Law. We are in Dayton, Ohio, where we can represent clients throughout the area including Warren, Greene County, Clark County, Miamisburg, Butler County, and Preble County.
What Is an Inheritance Tax?
When someone passes away and their heirs or executors are left to deal with their estate, there are a number of legal and financial considerations that may need to be addressed. One such issue that people are concerned about is inheritance tax. This is any state tax levied on the recipient of property or assets bequeathed to an heir after the owner dies. Currently, only states can levy inheritance taxes, and there is no federal tax.
Inheritance Tax vs. Estate Tax
You may also have heard of an estate tax and people often conflate this with an inheritance tax, though the two differ in one key element.
An estate tax is a tax that the estate must pay based on its total value
An inheritance tax is a tax that the recipient of the property or assets must pay after they receive it
In some cases, you may need to pay both an estate tax and an inheritance tax, but this is not common (in fact, Maryland is currently the only state that imposes both kinds of taxes though there is a federal estate tax that applies to certain high-value estates.)
Will I Have to Pay Inheritance Tax in Ohio?
For most people who receive an inheritance, the answer to this question is no. That is because there are only six states that levy an inheritance tax, and these are Maryland, Kentucky, Iowa, Nebraska, New Jersey, and Pennsylvania. So, if you had a parent who lived in Ohio then passed away and left you their estate, you will not have to pay any inheritance tax.
However, you may be asking, “What if I inherited property from a non-Ohio resident?” Let us take the same example as above to explore this. If you had a parent who died and left you their estate, but this time they were living in New Jersey before they passed away, you would be responsible for paying an inheritance tax. This is because the tax laws of the state the deceased lived in (in this example, New Jersey) must be followed and not the laws of the state the recipient lives in.
Other Taxes to Consider as a Beneficiary
There is currently no Ohio estate tax or inheritance tax, but there are still other taxes you should be aware of because these may apply to you. The best way to understand what your financial responsibilities are when receiving an inheritance is to meet with an experienced estate planning attorney who can evaluate your specific circumstances and ensure all your bases are covered. For example, you may have to pay federal estate taxes or capital gains tax.
Federal Estate Taxes: There is a federal estate tax, but this only comes into play for estates that are valued at over $12.92 million dollars (per 2023 guidelines).
Capital Gains Taxes: Another tax that many people do not realize they may have to pay is called a capital gains tax. This is paid on any appreciation that’s gained from selling inherited assets.
What if I Sell the Home I Inherited?
One of the most inherited assets is property, often in the form of a home. If the home is sold as part of the estate and then you receive all or a portion of the proceeds, you will not have to pay capital gains. However, if you inherit the house and then decide to sell it, you will be responsible for paying a tax on your capital gains.
Let Our Experience Guide You
If you would like to learn more about your responsibilities after receiving an inheritance, contact us at StachlerHarmon Attorneys at Law in Dayton, Ohio, to schedule a consultation. We are committed to helping all our clients no matter how little or big their legal issues are and will always provide personable yet professional service.