Indiana Estate Tax: The Ultimate Guide

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Paul Sundin, CPA

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Residence of the Hoosier state have tax questions. Most are aware of income tax rates and exemptions in the state. But what about estate tax, inheritance tax and gift tax?

In this article, we are going to look at some other taxes that can impact Indiana residents. So let’s jump in.

Does Indiana have an estate tax?

Indiana is one of 38 states in the United States that does not have an estate tax. This is great news if you live in the Hoosier state.

But even though Indiana may not have an estate tax, you could have an issue at the federal level. Federal estate tax can be complicated and requires a CPA or tax attorney to navigate the issue.

Indiana inheritance tax and gift tax?

I’ve got more good news for Hozier residents. Indiana does not have an inheritance tax nor does it have a gift tax.

States have typically thought of these taxes as a way to increase their revenues. However, many states realize that citizens can avoid these taxes by simply moving to another state. So the net effect was that high income and high asset people were moving to other states does lowering overall taxes.

As such, Some states have actually gotten rid of their inheritance tax and gift taxes. In fact only seven states currently impose an inheritance tax. So most folks will not come in contact with it.

Indiana tax picture

Indiana has a very tax friendly state. Even though there is a state tax assessment, there is no inheritance tax estate tax or gift tax.

But make sure you do your tax planning. Just because you don’t have an estate tax at the Indiana level you could find that you have it at the federal level. Make sure you review your issue with a competent CPA or tax professional in addition to an estate attorney. You can never start too early.

Federal Estate Tax Issues

Nobody likes the estate tax. In fact, there is a clear reason why it is often called the death tax. However, most people will not fall victim to it simply because they’re estate is not large enough.

The federal government gives you an exemption of $11.7 million for tax year 2021. So any assets below this level are not subject to the estate tax. Since most people have a net worth far below this amount, you can see why the estate tax impacts so few people.

Here are the mechanics of how you calculate it. When someone passes away, the executor of the estate must value all of their assets. These assets include real estate, mutual funds, cars, household furnishings, etc.

If the decedent just had stocks or mutual funds this can be easy. But if the decedent was a business owner or had certain sophisticated investments, it may make the calculation a lot more challenging. In fact, in this situation the executor would normally hire an appraiser to do all the valuation work.

Once the valuation is completed, the executor can deduct administrative costs, professional fees, and any debts the decedent had, including mortgages.

This final calculation of net assets is then compared to the exemption amount. If the net assets exceed the exemption, the excess is then multiplied times the tax rate of 40%. Of course this rate is high. But it’s a good thing very few will fall victim to it.

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