It should be noted that this article on estate taxes in Florida should be read with the Federal Estate Tax article. This will give you a better understanding of the entire estate tax umbrella as not purely federal estate taxes come into play during the probate administration process.
How are estate taxes calculated in Florida?
In Florida, we do not have State estate or inheritance taxes! Usually these taxes are for people who either own property in the state where they died (estate taxes) or inherit property from a resident of a specific state which imposes a tax for doing so (inheritance tax). It should be noted that if you live in Florida but inherit property from someone else whose property is in another state, you could be subjected to that state’s inheritance tax.
If you die in florida with less than the federal estate tax exemption amount of $11,400,000.00 per individual or $22,800,000.00 per married couple, you will not not owe any federal estate tax. Therefore, the heirs and beneficiaries inherit the property free of tax. For more information on federal estate taxes and how that can impact your estate plan, please visit our federal estate tax page here.
Where do inheritance and estate taxes apply:
Currently, only the below listed states apply an inheritance tax:
- New Jersey, and
The following states apply an estate tax:
- New Jersey,
- New York,
- Rhode Island,
- Washington, and
- the District of Columbia.
Income received by the estate:
If income is being received by the estate this will probably be taxed. An example is if the estate owns rental property that receives rental income during the administration of the estate. When someone pays rent, the money will go into the estate. This is income and thus it will be taxed accordingly.
Taxes on your inheritance by category:
- Cash – A cash inheritance, say a lump sum from a relative’s bank account or from life insurance, is not considered income for federal estate tax purposes.
- Taxed Deferred Accounts – Some accounts such as IRAs, 401(k)s, 403, and Keogh plans are tax deferred meaning that you do not pay taxes on the money until you pull it out of the account. Depending on how the account was set up and rules that govern it, it might make more sense for you to “roll” the account into your own retirement plan, pull the money out over a longer period of time, or in increments. If you inherit such a plan, you should talk to an administrator to see what exactly the rules and consequences are of the account. However, unless a person is in need of money quickly, it is typically best to “roll” these retirement accounts into your own retirement account to prevent this tax if you are not of retirement age.
- Securities – If you receive stocks from an estate and decide to sell it, you might have to pay income taxes. The general rule is that the inherited property is treated on a ‘step up’ basis meaning you do not have to pay taxes on the difference between the price the deceased paid for the asset and what you sold it for, but rather any increase on the asset since you inherited it. An example would be if your father purchased a stock for $5 in 1990 but was worth $12 when he died in 2010 and you sold it in 2011 for $15. You would only have to pay taxes on the difference of the $12, the value of the stock at the time of his passing, and $15, the price that you sold it for, which would be $3 per share instead of $10 per share (dating back to when the asset was originally purchased in 1990). Additionally, depending on how long you hold the assets for, you may be able to only pay taxes at the “capital gains” rate.
- Real Property – will be broken down by options:
- Homestead: If you inherit a family member’s homestead and you decide not to sell the home and already have homestead property yourself, you can expect property taxes to increase, sometimes significantly, depending on how long the prior owner originally purchased the house.
- Immediately sell the home: If you decide to sell the home, you inherit the home at the value of the property on the date of your parent’s death. Meaning you only have to pay income tax on the positive gain between the basis and the sale price. For most houses, the value of the property does not significantly increase during the amount of time it takes to sell the property and therefore little, if any, tax will be incurred.
- Use the property as a vacation house or income producing property for a while and then decide to sell it: If would like to keep the home for a number of years and then decide to sell the home, only the gains to the value of the house from the time of the prior owners passing until the point of sale would be taxed as income.
- Mortgaged Property: If you inherit a property subject to a mortgage, the lender will eventually foreclose on the property if the mortgage payments are not met. Each mortgage company has its own set of rules and procedures of what occurs after one of their lenders passes away. It is best to notify the mortgage company that your family member has died and then you will deal with that specific mortgage company’s procedures and guidelines. If the mortgage is more than the value of the home and you decide to simply “walk away,” note that the mortgage company cannot go after your personal assets for simply inheriting the property. However, in such situations, you will likely be named a defendant in the foreclosure action in order for the bank or lender to clear your name from the title of the property.
- Inheriting property jointly with siblings or other family members: Naturally, if you become a co-owner of property with another family member things become a little bit trickier. Income and liabilities of the property will need to be split amongst the parties. If the joint owners decide to rent the property, it is typical that only one of the beneficiaries deal with the property’s management. In order to prevent resentment, it is advisable to reasonably compensate this person for their time and addition work put into the property compared to the other family members who simply “sit back and let him or her deal with it.” Problems also arise when one of the beneficiaries desires to live in the house. In this situation, the parties can agree to reasonable rent to be paid from that beneficiary instead of said person living “rent free.”
Other information on Florida estate taxes:
If you move to Florida from another state, you should have all bank accounts, investment accounts, and any other assets moved to florida and titled appropriately to avoid any claims from your previous state. You should roll over or move any retirement accounts such as Keogh plans, 401, 403, or IRA’s if possible as well. If you are interested in how the federal estate taxes play out regarding your estate plan, check out another resource from us here.