Florida Inheritance Tax Explained

Medical science may one day be on the way to ending human mortality, but we’ll never be able to escape taxes. For example, most US states have hefty income taxes but also something referred to as the death tax (not surprising).

Thankfully, the Florida tax system is one of the most favorable in the country, even if it’s fairly complex. 

This still doesn’t mean you shouldn’t be familiar with the most important tax rules, especially if you’re a beneficiary or an heir to an estate, or putting together a will.

That’s why today, we’ll dive a little deeper into the Florida inheritance tax (or lack thereof), the federal estate tax, and other rules you should know about inherited properties. 

Is there a Florida inheritance tax?

Beneficiaries of a deceased person are required to pay an estate tax, more commonly referred to as the state inheritance tax. This amount is based on the wealth of the person who passed away, and at the time of writing, only six states enforce it:

Pennsylvania 

Iowa

Maryland

Kentucky

Nebraska

New Jersey

Fortunately, the Florida inheritance tax doesn’t exist. When you consider this along with the fact Florida also doesn’t have an income tax, it’s obvious why wealthier individuals are relocating to the Sunshine State in droves, especially from the northern part of the US.

Do note that the residents of the state will still be liable for properties located in states which have an estate tax. An obvious example is when someone dies after relocating to Florida but owns property in Iowa. The person who inherits these assets will owe tax in the other state. 

Federal estate taxes

Even though you won’t need to pay a Florida inheritance tax, you may still be subject to a federal inheritance/estate tax. This tax is mandatory for all decedents who are citizens or residents of the USA. 

The amount due is based on the assets of the decedent multiplied by a progressive tax rate. The assets subject to this tax are referred to as the gross or taxable estate and include assets contained in a living trust or owned individually.

The rate for this tax starts at 40%.

Fortunately, there is an exemption for the federal estate tax which, at the time of writing, is approximately $13 million (increases with inflation). Every citizen can exempt this amount from taxation during their lifetime or after death.

The law states that this exemption can be applied against after-death inheritance by will or a trust, or against lifetime gifts. The amount will be deducted from the credit which the taxpayer possesses at the time of their death.

In marriages, there is something called Deceased Spousal Unused Exclusion. This rule states that if a part of the credit isn’t used by the spouse who passed away, any remaining amount will be carried over to the surviving spouse. So in a sense, a couple can effectively exempt around $24 million from the federal estate tax when they pass on their assets to heirs. 

To take advantage of this exclusion, you must file Form 706 once the first spouse dies and elect the Deceased Spousal Unused exclusion on the form. Keep in mind that preparing this form is not straightforward, regardless of the size of the estate, so you’ll probably need legal help.

In case a federal estate tax is due, you must file Form 706 within nine months after the date of death, with the option of applying for an extension and receiving it in the duration of six months.

Florida gift tax

Just like Florida inheritance tax, the gift tax doesn’t exist as it was repealed back in 2004. Although you won’t have to pay state taxes for making large gifts, there’s the federal gift tax you need to be aware of. 

The rate for this tax starts at 18% for gifts up to $10k and goes all the way to 40% for gifts exceeding $1 million. 

In 2023, the annual exclusion amount for Federal estate tax is $17k or $34k per married couple.

The good news is, not all transfers will be counted toward an individual’s gift tax exemption limit or their lifetime estate. This includes:

Gifts to charities

Transfers between spouses

Paying for someone else’s medical expenses

Educational expenses as long as the payment is made directly to the institution

What about estate tax planning?

When it comes to income taxes on inherited assets, they will be reduced so that the gross estate includes appreciated assets. 

All this means is that the assets will be taxed on the stepped-up basis of the difference between the sale price of an asset and its adjusted value. In other words, the difference between the basis and the sale price is reduced, decreasing the difference in the capital gain liability if the individual inheriting the asset eventually sells it.

This usually becomes relevant once a married taxpayer passes away as the surviving spouse will owe income tax to the amount of the difference between the basis and the sale price of an asset upon selling the property or other assets.

What if you inherit a property?

Once someone inherits a property in Florida, they assume all legal responsibilities for the said property, including insurance. If the owner decides to relocate to the house, they may qualify for a homestead exemption of up to $50k.

If however, the person inheriting the property decides to sell it, they will owe taxes amounting to the increase in value from the day the decedent passed away to the date of the sale. 

Furthermore, the increase in value during the lifetime of the decedents isn’t subject to income tax as it makes up the basis of the value of the property.

Get in touch with the Law Offices of Mary E. King for the best estate planning services

Despite the fact Florida inheritance tax is nonexistent, navigating your way through different federal estate taxes can be challenging. Whether you’re receiving an inheritance and want to cross all the t’s and dot all the i’s or trying to minimize taxes on your estate, you will need an experienced attorney guiding you through the process.

For all your estate planning needs, feel free to reach out to the Law Offices of Mary E. King. We have years of experience handling all sorts of inheritance matters and can educate you on all the laws that affect the transfer of your estate or inheritance.

Call 941-906-7585 or fill out our online contact form to schedule a free consultation.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.