How will a Beneficiary be Taxed when Inheriting a Home?

The relationship of the beneficiary to the decedent makes a difference.

Are you considering whether to leave your home to your loved one?

Are you curious about the tax implications?

Thinking through these details is key to effective estate planning.

This will ultimately depend on the state in which you reside.

According to a recent NJ.com article titled “Complex inheritance taxes on a home,” the New Jersey laws focus on the fair market value of the property on your date of death and the degree of family relation between you and the beneficiary, if any.

What is a fair market value?

The fair market value is determined by an appraiser. It is his or her estimation of what the sales price would be for the property if both buyer and seller knew all relevant facts about the property and neither was under any compulsion to buy or sell it.

How is the "inheritance" tax on such property determined in New Jersey?

A Class “C” beneficiary is exempt up to $25,000.

Assets over the $25,000 are taxed at 11 percent up to the next $1.075 million.

What is an example of the Class “C” beneficiary?

This could be a sibling.

A Class “D” beneficiary will be taxed at a higher rate.

They are taxed at 15 percent for the first $700,000 and 16 percent for anything over $700,000.

An example of a Class “D" beneficiary would be a niece or nephew.

Because the value of a home is not calculated until your time of death, you cannot have a specific idea of the inheritance tax due.

In New Jersey, your estate can work with the New Jersey Division of Taxation for a “Compromise Tax.”

What is this?

Like the name suggests, it provides an opportunity for an alternate inheritance based on be life expectancy of the beneficiary, the inheritance class of the beneficiary and the likelihood the assets will be passed to remainder beneficiaries.

Work with an experienced estate planning attorney to create a tax effective plan to meet your goals and your circumstances.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ.com (June 19, 2017) “Complex inheritance taxes on a home”