Delaware Estate Tax Help: The Simple Guide

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Paul Sundin, CPA

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While we don’t have too many clients in Delaware, we still get questions regarding estate tax. Those people are aware of Delaware income tax rates, but estate tax is another issue. High income households must understand how it works.

In this article, we are going to examine certain Delaware taxes such as estate tax, gift tax, and inheritance tax. It can be a challenging area so let’s get started.

Delaware estate tax

This is a big concern for taxpayers with large estates. But the good news is that Delaware does not assess an estate tax.

But just because Delaware does not have an estate tax doesn’t mean that you’re not subject to it at the federal level. While the exemption level is high enough so it will not impact most people, it still be it can be a concern for you.

Federal estate tax

The federal estate tax exemption for 2021 is $11.7 million. It’s expected that less than 1% of American households will be impacted by this.

But there is discussions revolving around reducing the exemption amount and also increasing the tax rate from 40% to 45%.

So how does the federal estate tax work? Congress says it’s pretty easy. But most people will find it very challenging. In fact, many CPAs have a tough time with it. This isn’t because they don’t understand the calculation, but they just don’t have to apply it in the real world too often. 

Once a person dies, the executor of the estate will uncover all assets. This includes stocks, bonds, mutual funds and other assets, such as real estate and business interests. 

While it can be challenging to examine all the assets, the biggest challenge is usually determining a fair market value for each asset class. This is straightforward for stocks, bonds, and mutual funds.  But it can be much more subjective for real estate and business interests.

Once final values have been determined, the estate can deduct mortgages and other debt obligations. In addition, the estate can deduct legal, CPA, and other administrative fees.

Delaware inheritance tax and gift tax

Fortunately, Delaware residents are not levied an inheritance tax or a gift tax. This is great news.

In fact, most states without an estate tax have no gift tax. Only seven states assess an inheritance tax.

Delaware tax situation 

Delaware remains a moderately tax friendly state. While they do have real estate taxes and an income tax, at least they have no estate, gift, or inheritance tax. This can make the state favorable for wealthy individuals or high-end taxpayers planning a move to the state.

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