Like most states, Nevada does not impose a local inheritance tax on its residents. It means that in most cases, you won’t be responsible for any tax due if you inherit property in Nevada.
However, there are still certain cases and limitations that may oblige Nevada residents to pay taxes when they become heirs.
In this article, we shall discuss who may have to pay inheritance tax living in Nevada and whether there is a way to ease the tax burden for Nevada residents.
When do I have to pay Inheritance tax in Nevada?
As we have already mentioned, in most cases, you won’t be responsible for any tax due as a Nevada resident if you inherit within the state.
However, if your inheritance comes from a resident of one of the states that still have local inheritance taxes, you will be responsible for paying them even if you have never lived there.
Today there are 6 states with local inheritance taxation: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, and if there is a chance for you to receive an inheritance from one of them, it is better to learn the local tax rates in advance.
The inheritance tax always goes hand-in-hand with the estate tax, levied on the property of the recently deceased before it is transferred to heirs.
Nevada also does not have a local estate tax. But your inheritance can still become subject to federal estate taxation.
An estate that exceeds the Federal Estate Tax Exemption of $12,06 million becomes subject to taxation. The federal Estate Tax has a progressive rate that starts at 18% and can reach up to 40%, significantly decreasing your inheritance.
Thorough estate planning will help you to reduce the taxable part and protect your heirs from a fiscal burden.
How to reduce the taxable part of the inheritance in Nevada?
Nevada has no gift tax, and it is good news for those who need to reduce the taxable part of their estate. Technically you can give away shares of your property to your heirs in advance and protect it from the Federal Estate Taxation.
However, there is still a Federal Estate Tax, which is applicable to residents of all states. The Federal Gift Tax establishes an annual exclusion of $16,000 per recipient. This rate constantly changes according to the inflation level.
All-in-all it means that every US citizen can make up to $16,000 gifts to as many people as they wish without having to report those acts to IRS.
Considering the fact that the Federal Estate Tax takes effect if your estate exceeds the exemption level by only $1, those annual $16,000-worth gifts will be a great opportunity to preserve your legacy for heirs.
Payments for education and medical service are not considered taxable even if they exceed the $16,000 exclusion rate. Therefore, contributing to your children’s college funds can also become a part of estate planning.
With a proper approach and careful legal maneuvering, a married couple can join their forces and protect up to $24,12 million worth of their estate. Following the updates of the exemption rates and gifting away shares of your estate to your heirs is the most efficient and straightforward way to avoid severe Federal Taxation and preserve the future and welfare of your beloved ones.