For 2024, you can inherit up to $13,610,000 without the estate incurring federal estate taxes. This amount is known as the federal estate tax exemption.
It's important to understand that federal taxes on inherited wealth in the U.S. primarily refer to the federal estate tax, which is levied on the total value of a deceased person's estate before assets are distributed to beneficiaries. If an estate's total value falls below the exemption limit, no federal estate tax is owed, meaning beneficiaries effectively receive their inheritance free of this federal tax.
Federal Estate Tax Exemption Limits
The federal estate tax exemption amount is adjusted annually for inflation. Here are the recent exemption limits:| Year | Federal Estate Tax Exemption |
|---|---|
| 2024 | $13,610,000 |
| 2023 | $12,920,000 |
As you can see, the exemption increased significantly from 2023 to 2024.
Understanding Federal Estate Tax
The federal estate tax is a progressive tax, similar to federal income tax. This means that if an estate's value exceeds the exemption limit, the portion above that threshold is subject to a tax rate that increases with the size of the taxable estate. Only a small percentage of estates nationwide are large enough to be subject to federal estate tax.Key Considerations for Inherited Assets
While the federal estate tax exemption covers the vast majority of inherited wealth, here are a few other points to consider regarding inheritances:- State Inheritance or Estate Taxes: Some states impose their own estate taxes or inheritance taxes. Inheritance taxes are levied directly on the beneficiary's share, while state estate taxes are similar to federal estate taxes, levied on the deceased's estate. These state-level taxes vary significantly and are separate from federal taxes.
- Income from Inherited Assets: While the inheritance itself may be federal tax-free up to the exemption limit, any income generated by the inherited assets after you receive them (e.g., dividends from inherited stocks, rent from inherited property) is typically subject to federal income tax.
- Basis Step-Up: Inherited assets generally receive a "stepped-up basis" to their fair market value on the date of the decedent's death. This can significantly reduce capital gains taxes if you later sell the asset, as your cost basis becomes its value at the time of inheritance, not the original purchase price of the deceased.
Understanding these distinctions can help ensure clarity when dealing with inherited wealth. For the vast majority of people, inheritances fall well below the federal estate tax exemption, meaning no federal estate tax is due.
