Is Your Inheritance Taxable?

Law Office of Geoffrey Fong July 10, 2023

Text Inheritance Tax written on paper notebookEstate administration is often needed to settle a deceased loved one's estate and final affairs when they die. Generally, this often involves gathering estate assets, paying taxes and debts, and transferring the remaining assets and funds to rightful heirs and beneficiaries. However, depending on state and federal inheritance laws, inheritors may be asked to pay taxes on any assets, property, or money passed onto them by the decedent.

Going through the estate administration process can be stressful and challenging. Luckily, The Law Office of Geoffrey Fong is dedicated to offering reliable advocacy and personalized legal counsel to clients in the legal matters of estate administration and estate taxes. As a knowledgeable California estate planning attorney, Geoffrey Fong can analyze your personal situation and help determine whether your inheritance is taxable. The firm proudly serves clients across Rocklin, Citrus Heights, Folsom, Roseville, and California. 

What Is an Inheritance Tax?

An inheritance tax is a state tax or levy that is usually paid on assets and property, which a person inherits from a deceased loved one's estate.   

Typically, heirs and beneficiaries of an estate are legally obligated to pay a certain amount as inheritance tax on any money, asset, or property transferred to them during probate or estate settlement.   

However, the obligation to pay inheritance tax and the required amount will depend on applicable state laws – where you live and where the decedent lived prior to their death. 

Estate Tax vs Inheritance Tax 

Both estate and inheritance taxes are often levied on assets and property transferred during probate or estate administration. However, the major difference is the party who will be responsible for paying the tax.  

Estate taxes are levied on the decedent's estate, despite the heir or beneficiaries. As a result, it is the responsibility of the executor or administrator to pay estate taxes on the estate before they're transferred to rightful inheritors.  

In contrast, inheritance tax will be levied on the heirs and beneficiaries of the deceased person's estate, and they must pay the tax from the assets, money, or property received. 

Will I Have to Pay Inheritance Tax in California? 

California is among the states with no inheritance tax. Therefore, if you're a California resident and get an asset, real property, or money from a deceased family member (California resident), you're not required to pay inheritance tax in the state.  

Conversely, if the deceased person was a non-California resident and they lived in a state that requires paying inheritance taxes, you will have to pay inheritance tax to the state. For this reason, it is essential that you consult with your attorney to understand the applicable inheritance tax laws in the deceased person's state. 

Other Taxes to Consider as a Beneficiary

As a beneficiary, if you have received assets of a deceased loved one's estate, you need to consider the following taxes: 

Federal Estate Taxes 

The federal estate tax or "death tax" is often levied on a deceased person's estate and assets. The tax rate might vary between 18% and 40%. However, only estates worth at least $12.92 million are required to pay federal estate taxes in 2023. 

Capital Gains Taxes 

A capital gains tax is usually levied on the profit received from selling an inheritance held for at least one year. The capital gains tax rate is 0%, 15%, or 20%, based on the property value or taxable income. 

Income Taxes 

Also, you are required to pay taxes on the income if the inheritance or gift produces an income. Examples of income may include dividends, pensions, interests, and rentals. 

What if I Sell the Home I Inherited?

As mentioned earlier, in California, you don't have to pay inheritance taxes on a real estate property you inherit from a deceased family member's estate. However, if you hold the house for one year or more before you sell, you must pay capital gains tax on the difference between the value of the home when you inherited it and the home's value when you sold it. 

Seek Dependable Legal Guidance

If you have inherited a property or asset from a deceased family member's estate, it is imperative that you know your estate and inheritance tax obligations. Attorney Geoffrey Fong can walk you through all estate and inheritance tax-related matters. Using his broad understanding of state laws, Geoffrey can educate you about your tax obligations and help determine the actual amount of taxes you need to pay on the property you inherit.  

Contact The Law Office of Geoffrey Fong today to schedule a one-on-one consultation with a dedicated probate lawyer. Attorney Geoffrey Fong can offer you the experienced legal counsel and brilliant advocacy you need to navigate crucial decisions when determining estate taxes. The firm proudly serves clients across Rocklin, Citrus Heights, Folsom, Roseville, and California.