Do I Have to Pay an Inheritance Tax in Texas?

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Texas is one of the few states that does not have an estate, inheritance, or gift tax law. However, depending on the estate size, beneficiaries may be responsible for paying federal estate taxes. Understanding the thresholds for each and paying them if necessary is vital. Another essential factor to consider is whether the state the deceased lived in before passing has estate or inheritance taxes. If so, as a beneficiary, you could be responsible for filing and paying the taxes if the descendant did not file before passing. Understanding the intricacies of the various tax laws is crucial for beneficiaries. Estate planning laws are complex and very challenging to navigate. Therefore, many consult with an experienced Texas estate lawyer to ensure they follow the guidelines and proper procedures to protect themselves and their heirs. Speak with a dedicated Texas estate planning attorney at The Law Office of Jason Carr at 214-800-2366 to learn more about tax in Texas.

Do Texas Residents Pay State Estate Tax?

Handling an estate after the loss of a loved one is a great responsibility, and in most states, that includes ensuring they pay state taxes in accordance with the law. One of the significant advantages of living and owning property in Texas is there are no state estate taxes, including inheritance tax. After the death the estate will go through the legal process called probate. The executor will determine the heirs as the Last Will and Testament (will) or probate court determines, and how much each beneficiary will receive. Once probate is complete, estate beneficiaries can collect their inheritance without paying state taxes.

Inheritance May be Subject to Federal Taxes

Although Texas does not have an inheritance tax, the estate may be subject to federal estate taxes. A federal estate tax is a tax on the estate owner’s right to transfer their property to the beneficiaries upon death. Determining the amount of tax entails assessing everything the trust maker owns using the property’s fair market value to calculate the gross estate value. The tax amount parties owe to the federal government will depend on the final calculation amount. The gross estate comprises assets and properties, including the following:

  • Cash and securities
  • Insurance
  • Trusts
  • Annuities
  • Real estate

While the potential for owing federal estate and inheritance taxes exists, most estates are under the threshold asset amount the laws allow before requiring payment. Further, tax laws calculate the property’s value using fair market value, regardless of what the buyer paid.

Federal Estate Tax Exemption

Under federal regulations, the current tax exemption for 2023 with an inflation-adjusted increase is $12.92 million for individuals and $25,840,000 for married couples. Estate makers can legally transfer to beneficiaries in life or after death. There are adjustments to the tax exemption amounts yearly.

Federal Estate Tax Calculations

The Internal Revenue Service (IRS) does not require estate owners to file an estate tax return on most simple estates. That includes cash, lower-value assets, publicly traded securities, and jointly held property. The agency requires filing if the value of the gross estate plus the decedent’s adjustable tax gifts and gift tax exemptions is more than the filing threshold for the year the estate maker passes away.

The IRS provides a table showing the threshold amounts for 2011 through 2023 on its website. As an example, for deaths occurring in 2022, beneficiaries will owe federal estate taxes on amounts over $12.06 million. Estates worth less than the listed amount will pay no taxes to the federal government.

Inheritance and Estate Tax Planning in Texas

Federal estate taxes primarily affect those with significant assets who plan to leave a substantial legacy to their heirs. Federal estate taxes, including inheritance and gifts, apply to United States residents. Even so, most significant estates can still avoid paying outrageous tax payments and other adverse penalties because of the tax breaks they receive from Texas.

All estate planners and beneficiaries of an estate can benefit from contacting an experienced estate planning attorney to review and discuss varying estate tax requirements. While most feel confident they are well below the exemption amount, taking time to review and plan carefully could protect beneficiaries from adverse consequences later in life.

Gift Tax Requirements in Texas

Texas also has no state gift tax, but the assets could be subject to federal taxes. There is a yearly gift tax exemption, and should a gift be more than the exemption, the IRS will subtract that excess amount from the lifetime exemption of $12.92 million.

In fact, when property ownership changes without the receiver paying fair market value, the law considers it a gift. However, federal gift taxes only apply to gifts of significant value. There are also exceptions to gift taxes, even when they are valuable, and those include the following:

  • Up to $14,000 in gifts a year per person
  • Healthcare expenses or tuition gifted to an individual
  • Gifts to a spouse
  • Charities and political organizations gifts

Per the IRS, the gift donor is usually responsible for paying gift taxes. There are options to plan, and the agency suggests speaking with a tax lawyer to go over those options. Call a knowledgeable estate lawyer at The Law Office of Jason Carr to learn more about tax in Texas.

Contact an Experienced Estate Attorney to Learn More About Inheritance Taxes in Texas

Texas provides many tax benefits to residents, including not having an estate, inheritance, or gift taxes. However, every estate has its own set of circumstances, and while beneficiaries may not have to pay state taxes, they may be responsible for federal or other state taxes. Handling the responsibilities of carrying out an estate after losing a loved one can be overwhelming for the executor and the estate’s beneficiaries. Therefore, the IRS and other federal and state agencies suggest working with an experienced attorney. Schedule a consultation with a seasoned estate planning lawyer at The Law Office of Jason Carr at 214-800-2366 for questions and to learn more about tax in Texas.

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