Understanding Estate Tax in the United States: Rates, Exemptions and Differences from Inheritance Tax

Estate Tax

A tax on property (cash, real estate, stock, or other assets) transferred from deceased persons to their heirs.

Estate tax, also known as inheritance tax, is a tax imposed on the transfer of property at the time of death of an individual. It is a tax levied on the transfer of the estate or property of a deceased person to their heirs or beneficiaries.

The estate tax is calculated based on the value of the estate, which is the fair market value of all assets owned by the decedent at the time of their death, including all real estate, stocks, bonds, cash, and other personal property.

The estate tax is a federal tax, and it is one of the most important revenue sources for the federal government. The tax rate varies depending on the value of the estate, with higher estate values paying a higher rate of tax. The current maximum estate tax rate in the United States is 40%.

Most estates are not subject to the estate tax due to the high exemption limit. The exemption limit for the estate tax in 2021 is $11.7 million. This means that an estate with a value less than this amount will not be subject to the estate tax.

It is important to note that estate taxes are different from inheritance taxes. Inheritance taxes are levied on the heirs or beneficiaries who receive property or assets from a deceased person’s estate, whereas the estate tax is levied on the estate itself.

In summary, the estate tax is a federal tax imposed on the transfer of property at the time of death of an individual. The tax rate varies depending on the value of the estate, and most estates are not subject to the tax due to the high exemption limit.

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