In Texas, the tax implications for estate and inheritance taxes can be broken down into federal and state-level considerations.
Federal Estate Tax in Texas
Texas does not impose its own estate or inheritance taxes, but federal estate tax laws still apply. The federal estate tax applies only if the deceased’s estate exceeds a certain threshold, which for 2024 is $13.61 million. This means that estates below this exemption amount are not subject to federal estate taxes. If the estate exceeds the threshold, the federal estate tax rate ranges from 18% to 40%, depending on the size of the estate above the exemption.
Example Calculation: Federal Estate Tax
- Estate Value: $20 million
- Exemption (2024): $13.61 million
- Taxable Estate: $20 million – $13.61 million = $6.39 million
- Federal Estate Tax: Apply the tax rate brackets on the $6.39 million. For instance, if $6.39 million falls into the 40% tax bracket, then the federal estate tax could be $2.556 million (40% of $6.39 million).
Texas Estate Tax
Texas does not have an estate tax. This means that regardless of the size of the estate, the state of Texas does not impose any estate tax on assets passed down to heirs.
Texas Inheritance Tax
Texas does not have an inheritance tax. Therefore, beneficiaries inheriting assets in Texas do not owe any state inheritance taxes, even if they live outside of Texas. The location of the deceased’s assets or where the beneficiary lives does not affect the tax liability at the state level.
However, beneficiaries residing outside Texas should check the inheritance tax laws in their own states of residence. Some states (like Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) impose inheritance taxes based on the value of the inheritance.
Example: Inheriting from a Texas Resident while Living in Maryland
- If you inherit $1 million from a Texas resident and live in Maryland (which has an inheritance tax), you would be subject to Maryland’s inheritance tax rate of up to 10% on the amount received.
- Maryland Inheritance Tax: $1 million x 10% = $100,000
In this case, you would owe $100,000 in inheritance taxes to Maryland, even though the assets were located in Texas.
Federal Gift and Generation-Skipping Transfer Taxes
Additionally, if the estate engages in gifting or generation-skipping transfers, there may be other federal taxes involved. The federal gift tax exclusion for 2024 is $17,000 per year, per individual.
For estates in Texas:
- No state estate tax
- No state inheritance tax
- Federal estate tax applies above the $13.61 million threshold, with rates up to 40%.
For beneficiaries living outside Texas, inheritance tax may apply based on their state of residence.
-Lê Nguyễn Thanh Phương-
Resources for Additional Research
- IRS Estate and Gift Tax: IRS.gov Estate Tax Overview
- Texas Comptroller’s Office: Provides information on state-level tax issues in Texas: comptroller.texas.gov