Dealing With Taxes

Figuring out taxes can be complicated. You may need to contact an attorney or CPA familiar with both federal estate taxes and local state inheritance taxes. But here are a few general guidelines.

Federal Estate Taxes

There is no federal tax on an estate—no matter how large—when all assets are left to the surviving spouse.

Beneficiaries other than the spouse get a federal gift and estate tax exemption. The “unified credit against estate tax” eliminates taxes on combined inheritances equal to $1.5 million or less in 2004. Current tax law calls for this amount to increase until it reaches $3.5 million in 2009.

Federal estate tax returns are due nine months after a death. A penalty-free extension may be requested before that date. During an extension, however, interest is assessed on amounts owed.

State Inheritance Taxes

Inheritance tax regulations vary from state to state and can depend on an heir’s relationship to the deceased. Generally, spouses, children and parents pay lower rates than inheriting siblings, other relatives and non-family heirs.

Income Tax Returns

Federal and state income tax returns for the deceased are due on the April 15 following the death. If the estate itself generated income over a certain period of time, the estate must file an income tax return.

Real Estate Property Taxes

Taxes on a home or other real estate must be paid when they are normally due. Because tax laws are complex and change frequently, it is a good idea to contact an attorney or tax advisor.