There is an estate tax in the great state of New York, and you should be fully aware of the parameters when you are creating your estate plan. In this post, we will share all of the important facts and figures for 2023, and we will look at taxation on estates in a broader sense.
2023 New York Estate Tax Parameters
The exclusion is the amount that can be transferred before an estate tax would potentially be levied on the remainder. To be clear, there would be just one instance of taxation before the estate is distributed among the heirs.
In 2023, the New York estate tax exclusion is $6.58 million. The rate of the tax rate is graduated, so it depends on the size of the estate. It starts at 3.06 percent, and it maxes out at 16 percent.
There is no gift tax on the state level, but there is a three-year clawback provision. Large gifts that you give within three years of your passing are considered to be part of your estate for tax purposes.
If you are married, you can use the unlimited marital deduction to transfer any amount of property to your spouse tax-free. However, the New York estate tax exclusion is not portable, so a surviving spouse cannot use the exclusion that was allowed to their deceased spouse.
There are 11 other states in the union that have state-level estate taxes, and the District of Columbia has its own estate tax. If you own property in any of these places, their estate tax could be a factor for you if its value exceeds the exclusion amount in that state.
Some of the exclusions are considerably lower than the New York estate tax exclusion. For example, Massachusetts is one of these 11 states, and the exclusion there is just $1 million.
Federal Estate and Gift Tax
There is also the federal estate tax that can have a significant impact if you are exposed because it carries a 40 percent top rate. During the current calendar year, the federal estate tax exclusion is $12.92 million.
This is a record high exclusion that was established via a provision that is contained in the Tax Cuts and Jobs Act that was enacted at the end of 2017. It is going to sunset on January 1, 2026, and at that time, it is going down to $5.49 million indexed for inflation.
You can use the federal marital deduction to transfer unlimited property to your spouse tax-free, and the federal exclusion is portable.
Unfortunately, you cannot give large gifts while you are living to avoid the federal estate tax because there is a gift tax in place.
The two taxes are unified under the tax code, so the multimillion dollar exclusion is a unified exclusion. It applies to large lifetime gifts and the estate that will be transferred to your heirs after you are gone.
There are some additional gift tax exclusions that you should be aware of if this tax is a source of concern. You can give up to $17,000 to any number of gift recipients each year free of the gift tax without using any of your unified exclusion.
If you want to pay school tuition for others, the gift tax would not be applicable, and this also applies to the payment of medical bills for other people.
State-Level Inheritance Taxes
An inheritance tax is somewhat different than an estate tax. This type of tax is levied on distributions to each individual nonexempt inheritor when an estate is being administered.
There is no inheritance tax on the federal level, and there are just five states that have inheritance taxes. New York is not one of these five states, but if you inherit property that is located in one of them, the inheritance tax in that state would apply if you are not exempt.
Close relatives like spouses, children, grandchildren, and siblings are typically exempt from inheritance taxes.
For your information, the five states that have inheritance taxes are Pennsylvania, New Jersey, Kentucky, Nebraska, and Maryland.
Iowa has repealed its inheritance tax, but is being phased out over the next couple of years. The state of Maryland actually has an estate tax and an inheritance tax.
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