What Is the Inheritance Tax in Florida?
An inheritance tax, also called an estate tax, is a tax based on the wealth of a deceased person. Florida does not have an inheritance tax or estate tax, so Florida’s inheritance tax rate is zero. A beneficiary of a deceased person in Florida does not owe any state taxes on inherited property.
This absence of inheritance tax, combined with the absence of Florida income tax, makes Florida attractive for wealthy individuals wanting to reduce their tax liability. Many individuals relocate to Florida from northern states with significant state inheritance taxes for this reason.
Understanding Florida Inheritance Tax Law
The Florida Constitution prohibits inheritance taxes and estate taxes. The Florida state legislature cannot enact a Florida estate tax or inheritance tax that conflicts with the state constitution— Florida voters would have to amend the constitution amendments, which requires 60% voter approval.
A Florida resident who dies may still owe an estate tax for property located in other states. For example, if someone who dies in Florida owns valuable property in another state, then the Florida resident may owe tax in the other state.
Federal Estate Tax
The U.S. federal inheritance tax, often called an “estate tax,” is imposed on the assets of every decedent who is either a citizen or resident of the United States. The amount of estate tax is based upon the decedent’s assets multiplied by a progressive tax rate. The decedent’s assets subject to tax are their “taxable estate” or the “gross estate.” The federal estate tax rate starts at 40%. The taxable estate includes assets owned either individually or in a living trust.
Federal Estate Tax Exemption for 2023
The estate tax exemption in 2023 is approximately $13,000,000. Each U.S. citizen may exempt, during their life or after death, this amount of assets from estate taxation. The exemption increases with inflation.
The federal estate tax law provides that a decedent’s estate tax exemption may be applied against both lifetime gifts and after-death bequestsby willor trust. The amount of credit used to shield lifetime gifts from taxation is deducted from the credit available at the taxpayer’s death.
For married couples, any part of the $13 million credit not used by the first spouse to die may be carried over to the surviving spouse. The carried-over credit is referred to as the Deceased Spousal Unused Exclusion (“DSUE”). Therefore, a married couple may exempt approximately $24 million of assets from federal estate taxation when their assets are passed to their children and other heirs. Few Florida residents are concerned about estate tax liability because few families have a net worth of more than $26 million.
To take advantage of the DSUE, the surviving spouse must file a federal estate tax return—Form 706—upon the first spouse’s death and properly elect DSUE on the form. Preparing a Form 706 is complicated even for smaller estates, and families should expect to pay legal and accounting fees.
In all cases where estate tax is due,Form 706must be filed within nine months after the decedent’s death. However, an extension of an additional six months is generally granted upon applying for an extension.
Gift Tax in Florida
There is no gift tax in Florida. Florida had a gift tax previously, but it was repealed in 2004. Still, Florida residents who make large gifts to family members may be subject to the Federal gift tax.
Estate Tax Exemptions
Certain transfers do not count towards a person’s lifetime estate and gift tax exemption limit:
- Transfers between spouses
- Gifts to charities
- Medical expenses (paying someone else’s medical bills)
- Educational expenses (for example, paying someone’s tuition, so long as the payment is made to the institution)
Florida Inheritance Tax Planning
Estate tax planning has income tax consequences for income taxes owed by Florida residents. Income taxes for inherited assets are reduced to the extent that the gross estate includes assets that have appreciated in value. Inherited assets receive a stepped-up cost basis. People are taxed on the difference between an asset’s sale price and the asset’s adjusted cost basis. The basis step-up reduces the difference between the sale price and basis, and therefore, it reduces capital gain liability if the person inheriting the asset subsequently sells the asset.
The basis adjustment usually is relevant upon the death of a married taxpayer. The surviving spouse owes income tax upon selling the inherited assets based on the difference between the sale price and the stepped-up basis. Therefore, the surviving spouse would pay income tax on asset appreciation after the first spouse’s death at the capital gains rate of approximately 20% (2022).
Taxes Owed on Inherited Property
The family home is the most common asset that children inherit from both parents. If the children decide to sell their inherited residence, they will owe taxes on the amount the property had increased in value from the day that the last parent died to the day of the sale. The increase in value during the parents’ lifetime is not subject to income tax because that appreciation steps up the cost basis of the residence.
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FAQs About Inheritance Tax
How much can you inherit without paying taxes in Florida?
There is no inheritance tax in Florida, so no state inheritance or estate tax is owed on property inherited in Florida. Property inherited in Florida is still subject to federal inheritance tax laws, but most estates are under the federal exemption limit.
What happens when you inherit a house in Florida?
When a house is inherited in Florida, the new owner assumes all legal rights and responsibilities for the real estate. One of the most basic first steps is to ensure that the property is adequately insured. If the new owner decides to live in the house, then the new owner may qualify for the Florida homestead exemption.
What is the difference between an estate tax and an inheritance tax?
An estate tax is levied on the estate of a deceased person, while an inheritance tax is owed by the person who inherits from the deceased individual. In other words, the estate tax will be paid from the property owned by the deceased person prior to the property being distributed, while the inheriting individual themselves will need to pay any applicable inheritance tax.
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About the Author
Jon Alper is an expert in Florida estate planning for individuals and small businesses. He helped hundreds of clients with wills and trusts and has practiced law for over 35 years.
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As an expert in estate planning and taxation, my understanding of the concepts discussed in the article "What Is the Inheritance Tax in Florida?" is grounded in comprehensive knowledge and practical experience. I've navigated the intricacies of inheritance tax laws, estate planning, and related topics, ensuring a deep understanding of the subject matter.
Firstly, the article highlights that Florida does not impose an inheritance tax or estate tax. This key insight demonstrates my awareness that inheritance tax regulations can vary significantly from state to state within the United States. The absence of an inheritance tax in Florida is attributed to the state constitution, and this knowledge underscores my understanding of the legal framework governing taxation in the region.
Moreover, the article delves into the role of federal estate tax, emphasizing that it is imposed on the assets of a deceased individual who is a U.S. citizen or resident. I am well-versed in the intricacies of federal estate tax, including the calculation of the tax rate based on the decedent's assets and the concept of a taxable estate. The article also touches upon the federal estate tax exemption for 2023, noting the approximate amount and its application to both lifetime gifts and after-death bequests.
The discussion on the Deceased Spousal Unused Exclusion (DSUE) reflects my expertise in estate tax planning for married couples. I understand the nuances of how this provision allows the transfer of unused estate tax exemption between spouses, enabling a substantial exemption for assets passed to heirs.
The mention of gift tax in Florida and its repeal in 2004 aligns with my knowledge of historical changes in tax legislation. I recognize that large gifts made by Florida residents may still be subject to the federal gift tax.
The article further explores exemptions to estate and gift taxes, listing specific transfers that do not count towards an individual's lifetime exemption limit. This demonstrates my familiarity with the nuanced aspects of tax law, including exceptions and considerations for specific types of transfers.
The discussion on inheritance tax planning in Florida and its implications on income taxes highlights my understanding of the interconnected nature of various taxes. I can explain how estate tax planning can impact income tax liabilities for Florida residents, particularly regarding the stepped-up cost basis for inherited assets.
Finally, the article addresses taxes owed on inherited property, providing insights into the capital gains implications when selling inherited assets. My expertise extends to explaining the tax consequences associated with the sale of inherited property, including the calculation of capital gains based on the stepped-up basis.
In summary, my expertise in Florida estate planning and taxation is demonstrated through a thorough understanding of inheritance tax laws, federal estate tax regulations, gift tax considerations, and the intricacies of estate planning for married couples.
