The Sunshine State offers more beyond its beautiful beaches and warm weather. Beneficiaries in Florida who are expecting an inheritance are relieved to learn that there is no inheritance tax to pay. Still, there are other taxes that certain types of inherited property may be liable to.
Federal estate taxes
While the state may not charge an estate or inheritance tax, the federal government does. But because the federal estate tax only applies to assets over $12,920,000 million, most people are in the clear. Additionally, as an estate tax, it is deducted before the properties are distributed to heirs.
Retirement accounts
The transfer of a 401(k), IRA, or other qualified retirement plan to a beneficiary is free of tax liabilities. However, taxes may apply upon withdrawal of the funds.
The beneficiary is now in charge of these funds. Therefore, they must now pay income taxes on the funds just as the decedent would have had to pay them upon withdrawal.
Income-generating property
If the beneficiary inherits an income-generating property, they may have to pay taxes on the earnings made while in possession of that property. For example, if someone inherits a rental property with tenants, they may have to pay taxes on the rent paid by the tenants while the probate or settlement is taking place.
Sold Inherited Assets
Heirs do not have to pay income tax on any assets they receive. However, they may have to pay a federal income tax if they choose to sell those assets. The income tax typically applies only to the gains or increase in value of an asset after the decedent’s death.
Reading up on Florida tax laws is a great way to stay informed on tax obligations and avoid legal trouble. The problem is that most individuals cannot spare the extra time and effort needed to understand complex tax laws. Hiring an estate lawyer might provide some guidance on how to handle inheritances and any tax obligations.