Have you received some property through a deceased family member’s estate and need to know whether you need to pay an estate tax on it? In this article, we discuss some frequently asked questions about Iowa Estate Tax, including:
- What is an Estate Tax?
- Does Iowa Charge an Estate Tax?
- What is the Difference Between an Estate Tax and an Inheritance Tax?
- Is the Federal Estate Tax Applicable to Inheritances in Iowa?
- Who Has to Pay the Estate Tax?
What is an Estate Tax?
An estate tax, also sometimes referred to as a ‘death tax’, is a tax levied on the estate of someone who has recently passed away. This tax is levied on the money and property of a decedent’s estate before anything is passed on to the designated heirs or heirs at law. However, this tax is not levied on all estates. To be applicable, the estate’s assets much reach a minimum threshold.
Does Iowa Charge an Estate Tax?
If you have received an inheritance in Iowa, you are in luck. Iowa is one of the many states that does not charge a state-mandated estate tax. Iowa does, however, levy an inheritance tax that beneficiaries should be aware of.
What is the Difference Between an Estate Tax and an Inheritance Tax?
The main difference between an estate tax and inheritance tax is the party responsible for paying the tax. An estate tax is paid by the estate, while an inheritance tax is paid by the beneficiaries. For more information on the Iowa inheritance tax, check out Iowa Inheritance Tax Law Explained (oflaherty-law.com). Also visit this article for information on how to avoid the Iowa inheritance tax.
Is the Federal Estate Tax Applicable to Inheritances in Iowa?
In short, yes. Although Iowa may not levy an estate tax, the federal estate tax may still apply. In 2021, the federal tax exemption is $11.7 million per individual and $23.4 per married couple. The exemption applies to taxable gifts during life and assets at death. Tax rates are progressive, but the estate tax rate ranges from 18% to 40%.
Who Has to Pay the Estate Tax?
Estates that transfer assets below the federal exemption are free of tax. However, estates that exceed the exemption amount must file an estate tax return and pay the estate tax on the amount exceeding the exemption. For example, the estate of a single person worth $15 million would exceed the exemption by $3.3 million. They would pay taxes on the taxable estate, which is calculated by subtracting any applicable deductions from the $3.3 million. If no deductions apply, this estate would pay a $345,800 base tax and a 40% estate tax on that amount.
The vast majority of Americans do not die with enough assets to trigger an estate tax. If, however, your estate does extend beyond the federal exemptions, you may want to consider professional assistance in estate planning. If you have any questions, contact an experienced attorney at O’Flaherty Law today! Call our office at (630) 324-6666, or schedule a consultation. You can also fill out our confidential contact form and we will get back to you shortly.
If you're looking to learn more about how to create a will in Iowa, please read here.
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