If you own property you want to pass on after you die or if you are the heir to a property, it’s important to know about the federal estate tax, as well as the estate tax exemption. Essentially, an estate tax is a tax that is charged when a deceased person’s estate is transferred to someone else. The good news, for many, is that there are exceptions to the rules that may keep a transfer from being subjected to this tax.
Changes for 2021
As mentioned, one such exception or exemption to the federal estate taxes is that estates valued under a certain amount do not qualify for the federal estate tax. In 2020, as long as an estate was valued at under $11.58 million, it was not subject to this tax. And, for 2021, the exemption amount is even higher: $11.7 million. As such, the vast majority of estates are not going to be subject to this tax.
When You’re Not Exempt . . .
As you might imagine, the vast majority of estates are not going to be valued at $11.7 million or more. But, on the off chance that you inherit an estate above that amount, expect to be taxed quite a bit.
Generally, the first $1 million of the estate
is taxed at a lower amount, between 18% to 39%, depending on how much it
exceeds the exemption amount. Then, anything remaining after that first million
is taxed at a whopping 40%.
Seeking
Help
If you’re like most Americans, the
federal estate tax probably won’t be something you’ll ever have to contend
with. However, if you’re planning to transfer or accept an estate, it’s still
wise to prepare properly, ideally with the help of a financial professional.
That way, you can ensure your estate gets passed on exactly as you had planned
or that you can accept an estate with no ugly financial surprises in store.
And, if you are ultimately subject to the
estate tax, it’s even more important to get help managing your overall
financial situation and tax bill to stay out of tax trouble!