Iowa Inheritance Tax

Iowa is one of several states that have an inheritance tax. This is a tax on the right to receive money or property owned by the decedent at the time of death. It is different from the federal estate tax, which applies on the total value of the estate. So if you inherit property from a relative or friend in Iowa, you could be subject to the Iowa state inheritance tax.

You may inherit money or property through the decedent's will, or if there is no will, Iowa law provides for distribution of the property. Each beneficiary is subject to Iowa inheritance tax on his or her share of the decedent's estate. But certain relatives of the decedent are exempt from the tax.

Exemptions

As pointed out by Roger McEowen and Neil Harl, professors at the Iowa State University, your relationship to the decedent determines whether you will be subject to the Iowa inheritance tax, and if so, at what rate. The more closely related you are to the decedent, the less tax you will have to pay, if any.

Property that passes to the surviving spouse is not subject to the Iowa inheritance tax. Since back on July 1, 1997, lineal ascendants (parents, grandparents, and great grandparents) and lineal descendents (children, adopted children, stepchildren, grandchildren, and great grandchildren) are no longer subject to the inheritance tax either.

For other relatives including a brother or sister, son-in-law or daughter-in-law, there is no exemption and the tax rate is from 5 to 10%, depending on the value of the share of the estate that is inherited. For non-related persons the tax rate is from 10 to 15%.

How is the net estate determined?

Since each beneficiary is taxed on his or her share of the net estate, it is first necessary to calculate the value of the net estate. This is done by making a list of all the decedent's property that is subject to the Iowa inheritance tax, called the gross estate, and then subtracting certain debts and deductions.

Gross estate