Understanding Inheritance Property Tax

In the United States, inheritance property tax is assessed on nearly all inherited property. Any property received from a person who is deceased is referred to as inheritance property. It can come in the form of real property such as houses, land or a business. Some of the most common inheritance property includes automobiles, boats, jewelry, household furnishings and valuable clothing items such as fur coats or vintage wear.

Inheritance property can include all types of financial instruments such as cash, investment portfolios and life insurance proceeds. Financial inheritance property is classified as personal property, but is oftentimes taxed at a different rate than other types of personal property.

The tax rate assessed on inheritance property is based on the fair market value of the property. Typically, this value is established through an appraisal. Depending on the property being appraised, a professional appraiser may come to the location of the property or you might be able to take the property to the appraiser's place of business.

A primary factor that affects the tax rate assessed is the beneficiary's relationship to the decedent. For instance, a spouse is charged a lower tax rate than a distant cousin. Individuals who receive inheritance property are responsible for paying the associated tax.

State inheritance tax is generally not imposed on property that is passed to the surviving spouse. However, when property is passed to children, family or friends, state taxes are imposed. Each individual state governs inheritance taxes. Currently, 10 of the 50 states within the U.S. impose inheritance tax. These include: Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee.

Unless the decedent has constructed a revocable living trust, his estate will be placed in probate. This process takes between six months and two years to reach settlement. Probate can be a time-consuming and costly process, as well as freezing assets until a judge can hear the case.