As of 2022, only six states nationwide impose an inheritance tax, which are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Fortunately, Florida is not part of the list, which means beneficiaries and heirs of Florida residents do not pay inheritance tax.
Are there other forms of taxes that affect inherited money in Florida? Read on to find out.
Is Inherited Money Taxable in Florida? – The Basics
The state of Florida levies no separate inheritance tax on the estate of a deceased resident. Moreover, heirs and beneficiaries who inherit in Florida are not required to pay income tax on assets and money received from a decedent’s estate.
Within state jurisdiction, an inherited property is not considered income for Federal tax purposes. As Florida does not have income taxes, the state is one of the best places across the nation to receive an inheritance.
Please note that the federal government imposes an estate tax that applies to all US Citizens. As of 2022, if the total value of a deceased person’s estate exceeds $12,060,000, the estate or trust is responsible for paying the federal tax.
The estate tax level for married couples is $24.12 million, which limits the number of estates subject to the federal tax threshold. Even in such cases, the beneficiaries are not directly responsible for paying the taxes owed to the federal government on multi-millionaire estates.
Is Inherited Money Taxable in Florida? – Taking a Closer Look
While heirs and beneficiaries are not subject to federal or state taxes on inherited money, they may be exposed to taxes in specific situations.
Withdrawing Money from an Inherited Account
Florida law protects retirement accounts and other qualified accounts from inheritance and transfer tax, such as IRAs, 401(k)s, and annuities. However, when it is time to withdraw the money, beneficiaries can be exposed to taxes.
Since the deceased account owner would have been exposed to withdrawal taxes, the beneficiaries must also pay taxes when withdrawing funds. Some types of pension plans and investment accounts are also exposed to this type of tax.
Income generated by life insurance policies before its distribution upon the owner’s death can also be taxed on the beneficiary.
Income Taxes on Money from a Deceased’s Estate
If an inherited property generates income, the proceeds may be subject to taxes before the property is transferred during probate.
For instance, let’s say a Florida resident died owning a house leased to a couple of tenants. The amount of rent paid by the tenants during the probate or trust settlement period is subject to income taxes.
Selling Inherited Property
Inherited property is not subject to income taxes when the heir or beneficiary receives it directly from the decedent’s estate. Once the property is transferred to the new owner, the proceeds from a sale are subject to federal income tax if the value has appreciated.
When the Decedent was not a US Citizen
If a Florida resident inherits part of the estate of a non-US citizen, it may result in several tax complications. When a non-US citizen dies owning property in Florida, the heirs and beneficiaries may not inherit without paying taxes.
The best approach is to consult with an expert Florida attorney for an individual assessment.