Estate, Inheritance and Income Taxes in Florida

I get a lot of questions about estate and inheritance and income taxes for Florida estates.

First, Florida has no separate estate tax; Florida did have what is commonly known as a “sponge” tax which is tied to the Federal Estate Tax; essentially, what happened was, if an estate was large enough to be subject to the Federal Estate Tax, Florida would tax that estate as well; however, it would not increase the total estate tax liability as the Federal estate tax would grant a dollar for dollar credit against the Florida estate tax. Florida did away with this entirely for decedents dying in or after 2005 and now has no sponge tax.
To be honest, the federal estate tax is not an issue for most estates in Florida; the current Federal Estate Tax exemption is $5 million. If your estate is, or may be, subject to the Federal Estate tax, then you should talk to an attorney about how to eliminate or minimize those taxes. There may also be differences where either the person leaving the money is not a United States Citizen, or where one of the people being left the money is not a US citizen; particularly if the spouse is a non-US citizen or if the person leaving the property is a nonresident, non-citizen, i.e., someone who is not a citizen, who is not a permanent resident of the United States, but owns property here such as a vacation home or investment property; if any of these are the case then you should at least talk to an attorney to see whether you need additional estate planning.

Other than that, though, in nearly all cases there is no Florida or Federal estate tax due.

Second, Florida has no ‘inheritance’ tax; though some states will levy a tax not on the gross estate, but upon certain classes of people who receive an inheritance. Who is subject to it, the exemption, if any, and the tax rate varies depending on the state. However, the general rule is that the tax is applicable only in cases where the person who died was a resident of that state, or where a nonresident owned property, real or personal, in that state, such as in the case where a Florida resident owned property in another state.

I’ve mentioned before that if you move to The Villages, Florida from out of state, it is a really good idea to move any bank accounts, investment accounts and any other assets to Florida in order to avoid a claim by the state where you came from that you were still a resident of that state and claims that you might owe income tax in that state; this is another reason to move any assets you can to Florida; If you leave a bank account or an investment account in another state, it is possible that state could claim either a estate tax or inheritance tax under some circumstances. Don’t forget to move or ‘roll over’ retirement accounts such as IRA’s, Keogh Plans and 401 and 403 plans if possible. Talk to an investment professional about how to transfer or rollover these types of accounts; this is not something you want to do yourself, if you don’t know what you are doing you may be at risk of triggering income tax liability if you make a mistake.

Third, Florida has no personal income tax; and as a general rule, most inheritances will not trigger a federal income tax either, although the estate may have to file a federal income tax return. The major exceptions are, first, if the money was “tax deferred” such as under an IRA, 401, 403 or Keogh plan; that money will be taxable as it is drawn out; depending on how the plan was set up and who receives it, there may be ways to avoid having to draw all of the money out all at once; instead, stretching it out over several years. If you have such a plan, you need to talk to an administrator to see if you need to do anything to allow this; if you inherit such a plan, you need to talk to whoever runs the plan before you draw any money out. And, some benefits received from pension plans and retirement distributions may be taxable; the general rule is that if the money would have been taxable to the person who died, it is taxable to the person who inherits it.

Also, any income received by the estate and passed on to the heirs or beneficiaries may be taxable; for example, if the estate inherits property that is rented during the probate, and the rent is paid to the heirs, then income tax may apply.

And, if you sell property that you inherited, income tax may apply; if you inherit a house or stock, and sell the house or stock, then you may have to pay income tax on the sale at the time that you sell it. However, the general rule in this country is that inherited property is treated on a ‘step up’ basis; you do not pay tax on the difference between what the person who died paid for it and what it was sold for; you pay tax on the difference between what the property was worth on the date of death and what you sold it for. Under most circumstances, property that has been held for a period of time has increased in value; so if your mother bought stock at $1 a share in 1970, but it was worth $100 a share when she died in 2012, and you sold it in 2013 for $110 a share, you would owe tax only on $10 a share, not $109 a share. The same rule applies to real estate, and other sorts of investments, such as gold. And, depending on how long you hold the property after you inherit it, you may be able to pay taxes at the “capital gains” rate and not ordinary income tax rate.

Bear in mind, all of this is subject to changes in the law; I don’t know what is going to happen in Washington, DC and there has long been talk of changing the law in this area; if you have a large estate you need to pay attention to the news and contact an attorney if the law changes.

But, in any event, Florida has no income tax on inheritances or estates.

If you have questions about estate planning in The Villages Florida, please contact my office. If you have a need for a probate in The Villages, including Summerfield, Lady Lake, Wildwood, Fruitland Park and Oxford, please call my office.

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41 Responses to Estate, Inheritance and Income Taxes in Florida

  1. Ann says:

    Interesting article. Can you address inheriting mineral rights, non-performing since inheriting, but now the land is being leased, and the lease rights paid out at a rate of under $10,000. for a 3 year period. Is this subject to tax? And if so, what rate?

    • admin says:

      It is going to depend; long story short is you need to talk to your accountant; it’s income, subject to income tax, what the rate is will depend on what bracket you’re in, and maybe how the lease is set up.

      An accountant could answer this better than a lawyer.

  2. richard Mccurdy says:

    My wife is getting a 100,000 inheritance from a person she cared for. Do we have to pay taxes on it

    • admin says:

      Probably not, unless either she or the person she’s inheriting from are not from Florida (As I note, some states have inheritance taxes); or unless the money is from some sort of tax deferred investment, such as an IRA, Keogh Plan or US Savings Bond; or unless the entire estate is subject to the Federal estate tax, in which case she may be proportionately liable for some of the tax, but she really needs to talk to an accountant to make absolutely sure.

  3. Janie Stowe says:

    If I am a Pennsylvania resident and inherit a house in Pennsylvania from a Florida resident, do I have to pay any kind of taxes on the house which I have 170,000 invested in but he will not put my name on the house?

    • admin says:

      This is going to be governed by Pennsylvania law; not Florida. You need to talk to Pennsylvania lawyer about this.

  4. Petra says:

    If the person,who died and his family are from out of US, but have investment properties in Florida is there any tax.

    • admin says:

      Maybe. You need to talk to an accountant. It’s going to depend on where they are from and the value of the estate, amongst other things.

  5. Nathalie says:

    Thanks, this is very informative. I was born in France, became a US citizen several years ago and I am a Florida resident. My parents in France will leave an inheritance consisting of a house and all its contents as well as some cash to my brothers (both still in France) and me. What kind of attorney should I talk to regarding what my tax liability would be both in France and here in the USA?

    • admin says:

      You probably need to talk to someone who specializes in international tax matters; which I don’t. You are US citizen, so as far as the US goes, you’d be able to take advantage of US tax law; however some of this may be governed by tax treaties between France and US and frankly I ‘m don’t know anything about that specialized area of the law. But there are lawyers who are , and frankly a lot of them are in South Florida, particularly the Miami area. I can’t give you specific name or law firm though.

  6. Nancy DerSimonian says:

    Thank you for the article. If Florida has no state income tax, and follows the federal rules for estate tax, how does Florida make its money? If I am a resident of PA, and own a home in FLA also, it sounds as though I should become a resident of FLA as there appears to be no downside, but I am always weary of things that sound too good to be true. Could you tell me what I am missing, tax wise, if anything?

    • admin says:

      Well, you get what you pay for. Florida is low tax state; but it’s also low expenditure; they spend less on schools, less on roads, less on government benefits, what have you. Whether that’s good or bad is up to your point of view; but you won’t get the same level of services that you would expect in PA, or say, NJ, which is where I’m originally from.

  7. Steven says:

    I am a resident of Pennsylvania and am a beneficiary (not a first degree relative) of an estate which belonged to a Florida resident. Do I have to pay a Pennsylvania estate tax? If the inheritance involves securities, but not property (which I interpret to be restricted to real estate) do I also have to pay Pennsylvania inheritance tax as well?

    • admin says:

      I don’t know. You need to check with Pennsylvania lawyer and/or accountant. I can only advise on Florida law. Sorry about that.

  8. Joseph says:

    I am the succesor trustee for deceased widowed aunts Rev Living Trust in which case the remaining assets consisting of two checking accounts and her home are all in the name of the trust. The value of all the assets are less than $300,000. Thier were 2 annuities that I hence provided death certificates too and distributions have been made to the trust checking accounts. Given your article I understand that once I make the asset distributions to the beneficiaries(nieces and nephews she had no children) of the cash or the property no taxes would be due from the trust nor by the beneficiaries as ordinary income. The annuities did have have about $30,000 gain above the cost basis at distribution. Please advise on any tax consequences to the the trust or the 8 beneficiaries?

    • admin says:

      You need to talk to an accountant about the tax on gain. And, this is assuming the trust and all beneficiaries are in Florida; if they’re not, then there may be state tax issues as well.

  9. John B. says:

    My wife’s father is leaving a CD in our name upon his death. Do we have to pay any tax on it or even claim it at tax time?

    • admin says:

      Well, I”m assuming he’s not dead yet; if he’s still alive it’s his CD and you don’t have to pay any taxes on it because it’s not yours yet. Once he dies and you get the money from the CD you will owe income tax on the interest that accrued between his death and your cashing it out; but won’t owe tax on the principal. Now, if this is an IRA and not a CD, then you would owe income tax on everything as you took it out.

  10. mary says:

    My father in law recently died (7/2013). He had a couple CD’s with his name, his wife’s name (83yrs of age) and their 2 sons (57 and 59 yrs of age) (one of course is my husband). It was listed “or” between each name. Two CD’s were in a bank in NC. We live in FL. We sent the NC bank the proper documentation that he passed and closed the CD’s. We received the total amounts divided between the three- 3 seperate checks. There wasn’t a penalty to cash them. Are each of us to pay income tax on the amounts each recieved or just on the interest accured before? Or are these CD’s considered gifts/part of his estate?

    • admin says:

      Ok, if these are actually CD’s (i.e., not IRA’s) then you will owe tax on any interest that accrued; not the whole amount received. You should get year end statement from bank showing what the interest paid was.

  11. Katie says:

    I inherited $47,000 from my grandmother who passed away in 2010 from her retirement money. I’m wonder if I have to pay taxes on that money? I don’t remember if they took taxes out when I got the money. I was trying to get my tax refund money back and the lady brought up that I didn’t file for the money. I live in Florida and my grandmother lived in Florida as well.

    • admin says:

      You may have to pay taxes on that, if it was from IRA or Keogh or 401 type plan; the key is whether she paid taxes on it before it wa put into retirement account. You need to review paperwork and check with accountant.

  12. Camilo Roncancio says:

    Hi,

    I am a Georgia resident and my mother left my a house in the state of Florida (she was a Florida resident). The house is worth about 170,000 dollars. Do I have to pay estate taxes? Thank you in advance for your answer.

  13. David Warfel says:

    My father-in-law is terminal. He has four daughters who are to receive an equal amount of his cash. Two live in Fla. There really is no personal property etc to deal with as he sold his house a couple years back. He has about 200K in the bank. The daughters are listed as OR on the bank savings and checking. My question is when he passes, soon, will there be any need to report the cash to the federal govt when it is distributed since they are OR on the accounts not AND? I assume there is no tax for the two that live in Fla…

  14. EVE says:

    I am a Florida resident. Few month ago I received 10,000 cash inheritance because my dad died. He was a US citizen, but he lived and died in Puerto Rico. I received the money from Puerto Rico and I deposited the money in my savings account. Do I need to pay taxes? Do I need to reported to IRS? If I do..what form do I need to use? Thanks

  15. Robert West says:

    About 1/2 of the Florida estate of which I am the successor trustee is in an IRA ($500,000). The rest are securities in a brokerage account.

    Q1: There is no estate tax (federal or state) . . . correct?

    Q2: If I transfer the IRAs to the named charity beneficiaries and transfer the brokerage accounts to the non charity beneficiaries will I avoid income taxes on the IRA distributions (since Non IRA funds are not subject to the income tax)?

    Thanks.

    • admin says:

      Assuming that 1) the person died this year (2013) 2) that there are no assets out of state of Florida and that decedent was resident of Florida and no other state can try to claim residency, and 3) there are no other assets passing at death that would push you above the federal estate tax exemption, then no, there shouldn’t be any state or federal estate tax.
      As far as question two goes, you need to talk to an accountant to see if this is permitted under federal law and have lawyer review terms of trust to see if it’s permitted under trust.

  16. Isabelle says:

    if one inherits or is the beneficiary of annuities in fl, must income tax be paid?

    • admin says:

      Probably. It depends on cost basis of annuity and how much of what you get is return of original investment and how much is income. Talk to competent accountant.

  17. Dun Dun says:

    Do you mean FL has no tax on estates or trust even if it’s under 30k?

    • admin says:

      Florida has no estate tax for decedents dying in or after 2005; if they died prior to 2005 the only estate tax Florida had was a “sponge” tax, which only applied to large estates; if there was no federal estate tax due, then there was no Florida estate tax due.

  18. Janee says:

    Very good information, very useful for me, I will receive an inheritance of $ 300,000 and did not know how many tax should pay, thank you for shareing.

    • admin says:

      It depends on the source of the $300,000; if it was from a ‘tax deferred’ source such as an IRA or 401K or such, then you may owe tax on some or all of it; if it was from a non tax deferred source, such as a CD or savings account, the only tax you may owe is on any income received between when the person died and when you received it. For specific details, you should talk to an accountant.

  19. Tammy says:

    I am a resident of Florida and I received a $50,000 inheritance after my father passed away last year. He was a resident of Virginia. The money I received was tax-free. Will that be considered as taxable income in Florida when I file my taxes?

  20. Ismael reyes says:

    I own a property in PR that i bought while still having PR residence and single. Now that I am married and am a resident of Florida, who inherits that property if I die. I know in Florida my wife would inherit The property we own here but in PR I don’t know. Thank you

  21. n m lin says:

    my parent passed away leaving a brokerage account for which we were both joint tenants. I am also the executor of the will with, after the executor dispursement, division of the brokerage holdings to be shared equally between me and my 2 siblings. my parent advised me that as executor I am entitled to 10% of the value of the estate. is that true? since the brokerage account was in both our names, my attorney has advised me to sell the holdings and give each sibling a check for one third of the value of the account. the checks however can only be printed with my name on them. how do I then give them to my siblings?? wouldn’t I also solely be responsible for any possible claim against the estate since everything is in my name and not my siblings? also, one sibling lives in north Carolina. is her part of the inheritance subject to a state tax?

    • admin says:

      You need to be asking your lawyer these questions. I don’t know what state you’re in, Florida doesn’t use the term “executor”, and frankly I’m having trouble figuring out what is going on from your question.

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