Wondering what is an estate tax? While the name makes it seem like a variation to regular “property tax”, the correct estate tax definition is pretty different.
An estate tax is a federal tax imposed on the estate of a decedent according to the value of that estate upon the death of the taxpayer/homeowner via a will or according to state intestate laws. In other words: a tax the government collects from the transfer of real estate as an inheritance.
Note: estate tax does not apply to surviving spouses; only when the beneficiary is an heir. Plus, the tax is paid by the estate, not the heirs.
The first step in the computation of the federal estate tax owed is to determine the value of the decedent's gross estate. This determination can be made by adding the following values of assets owned by the decedent at the time of death:
The second step in the computation of the federal estate tax owed is to subtract allowable deductions (including bequests to charities, bequests to the surviving spouse, funeral expenses, and other administration expenses) from the gross estate. This results in the tax estate. Adjustable taxable gifts are then added to the tax estate, resulting in the computational tax base.
When buying a home, think about the future. Ask your real estate agent to recommend a tax specialist so you’re not caught off guard regarding any taxable assets.