In Arizona, there are no state-level estate or inheritance taxes. However, federal estate taxes still apply based on the overall value of the decedent’s estate. Here are the key details and examples to clarify the tax implications for estates and inheritances in Arizona.
Federal Estate Taxes:
Federal estate taxes apply to the total value of a deceased person’s estate. The federal estate tax exemption in 2024 is $13.61 million. This means that only estates valued above this threshold are subject to federal estate taxes. If the estate exceeds this exemption, the portion over the threshold will be taxed at progressive rates, which range from 18% to 40%.
Example 1: Estate valued at $20 million
- Total estate value: $20,000,000
- Exempt amount: $13,610,000
- Taxable estate: $20,000,000 – $13,610,000 = $6,390,000
- Federal estate tax rate on this amount will follow a progressive tax structure up to 40%.
For the first portion of the taxable estate (up to $1 million over the exemption), the rate is lower. Once the taxable portion exceeds certain thresholds, the maximum rate of 40% applies.
Example 2: Estate valued at $15 million
- Total estate value: $15,000,000
- Exempt amount: $13,610,000
- Taxable estate: $15,000,000 – $13,610,000 = $1,390,000
- The taxable estate will be subject to a lower progressive tax rate as it is closer to the exemption limit, potentially taxed at 18-40%.
Arizona State Taxes:
Arizona does not have an estate tax or an inheritance tax. This means that if someone inherits assets from a deceased individual in Arizona, they do not owe any state inheritance taxes, whether they live in Arizona or outside of the state.
However, beneficiaries may still be subject to federal income taxes on certain types of inherited income, such as distributions from inherited retirement accounts (e.g., IRAs or 401(k)s).
Inheritors Living Outside of Arizona:
Since Arizona does not impose inheritance or estate taxes, an individual living outside of Arizona who inherits from an estate based in Arizona does not owe Arizona inheritance tax. They will only need to consider federal tax implications or taxes applicable in their state of residence, if any.
Federal Gift and Estate Tax Exclusion:
Arizona residents should also be aware of the federal gift tax exclusion. For 2024, the annual gift tax exclusion is $17,000 per recipient. This exclusion allows individuals to gift up to $17,000 per person each year without those gifts counting toward the lifetime estate and gift tax exemption.
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Reference and Resources:
- For detailed information on federal estate and gift taxes, refer to the IRS guidelines on estate and gift tax: IRS Estate Tax FAQ.
- To review Arizona state tax guidelines, you can visit the Arizona Department of Revenue: AZDOR Website.
Let me know if you need further clarification or calculations on any specific scenario related to estate planning in Arizona!