Idaho might be the most “tax-friendly” state for those who inherit an estate there. As of 2004, the Gem State has neither inheritance, nor estate taxes, often referred to as “death taxes.”
However, Idaho residents are often not aware that sometimes they do have to face taxes when they inherit property.
In this article, we shall discuss what kind of “death taxes” are relevant for Idaho residents and what are the legal ways to ease the fiscal burden.
Inheritance taxes for Idaho residents.
Technically, there are 2 cases when an Idaho resident will become responsible for the tax due when they inherit:
- If the inheritance comes from a state that still has an inheritance tax. Right now, those are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If there is a possibility that you may inherit property from one of those states, it is better to learn more about their local inheritance taxes even if you have never lived there;
- If the inheritance increases, the Federal Estate Tax exemption of $12,06 million. The overall estate of the recently deceased is apprised before it is transferred to hers, and the difference between the current value and the Federal Estate Tax exemption becomes taxable.
The Federal Estate tax can reach up to 40% and comes into action even if the property exceeds the exemption bar by only $1. That is why it is vital to carefully assess your current estate and start estate planning if you want to preserve as much as possible and secure your heirs` future.
How to avoid paying estate taxes in Idaho?
Idaho has no gift tax, and it is the most tax efficient and straightforward tool to reduce the taxable part of your estate.
Gifting away shares of your property to heirs presumptive, you can protect up to $12,06 million worth of heirdom. This number doubles for a married couple and becomes $24,12 million.
And although the Federal Gift Tax applies to all US citizens, it has an annual exclusion rate of $16,000 per recipient. In other words, you can gift away up to $16,000 to as many people as you wish every year. A married couple can make $32,000-worth gifts, which don`t have to be reported to IRS.
Moreover, gifts between spouses, payments for education and medical treatments as well as donations to IRS-approved charities are also not considered taxable even if they exceed the exclusion bar.
With thorough estate planning and proper legal maneuvering, Idaho tax laws allow any resident to protect up to $12.06 million worth of estate from the Federal “Death Taxes.” However, depending on the actual worth of your estate and the number of heirs, the procedure may take decades. Therefore it is essential to address professional assistance and follow relevant regulations to benefit most from this strategy.