Alaska is one of the most beautiful states in the country. It has seen a huge influx of residents thanks to the pandemic and people being able to work remotely.
But before you pack your bags and move there, you will want to make sure you understand the tax system. Alaska is an extremely tax friendly state, but how much do you know about the estate tax, inheritance tax, and gift tax?
In this post, we are going to examine the Alaska estate tax and also touch base on other taxes imposed by the state.
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Alaska estate tax
Alaska imposes very few taxes on its residents. In fact, there is no Alaska estate tax. The state receives so much income as a result of levies on oil that it has never considered an estate tax.
This actually is not that rare though. Only 12 states in the country impose an estate tax and some are looking to get rid of ones that they have in place.
What about the federal estate tax?
Even though Alaska does not have an estate tax, it does not mean that you won’t be subject to one at the federal level. But this shouldn’t concern most Alaska residents. The estate tax only impacts less than 1% of American citizens. Most people just don’t have enough assets that would require them to pay and file an estate tax return.
Let’s discuss how the estate tax actually works. When someone passes away, an executor is assigned to oversee the person’s estate.
The executor will itemize out all of the assets and liabilities of the decedent. The assets will include real estate, retirement accounts, mutual funds, stocks and bonds, and other personal items like cars, planes, boats and even collectible items.
The fair value of these items needs to be identified as of the date of death. This will often require a formal valuation or appraisal of certain of the items. It just depends on the type of asset and the size of the estate.
Once assets have been properly valued, the executor is allowed to deduct debt obligations, mortgages, and other liabilities of the decedent. Lastly, the executor can deduct professional fees relating to the estate. This would include legal fees, accounting fees, and any appraisal related costs. Also, don’t forget to deduct funeral and burial expenses.
Once this final amount is calculated, any excess amount over the annual exemption is subject to the estate tax at 40%. There has been discussion about raising the rate and lowering the exemption amount, so time will tell. But going forward, I would suspect more people are going to be caught in the estate tax.
Alaska gift tax and inheritance tax
I’ve got some more good news for you. Thanks again to Alaska’s significant oil receipts, Alaska does not have a gift tax or an inheritance tax.
Only seven states have an inheritance tax and few have a gift tax. The IRS does not impose an inheritance tax, but it does have rules governing gift taxes. Any gift exceeding $15,000 per year would fall under the taxable gift rules and require a gift tax return.
Overall Alaska tax structure
Alaska is certainly the most tax friendly state in the country. In fact if you live there you get a stipend from the government based on its oil taxes.
You can’t find a better place to live from a tax standpoint. You just have to make sure that you can withstand those cold winters!