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Death and taxes: Inheritance taxes

Tax BasicsInheritance taxes are separate from estate taxes imposed by the federal government and many states.

The Internal Revenue Service collects the estate tax on all U.S. citizens and residents. The tax is levied on the deceased's estate as a whole, filed on a single estate tax return and paid out of the estate's funds. The U.S. government imposes no inheritance tax.

States, however, may impose an inheritance tax on beneficiaries who receive property from the deceased. These taxes are assessed by states in place of or in addition to state and federal estate taxes. The tax is calculated separately for each beneficiary, and each beneficiary is responsible for paying his or her own inheritance taxes.

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To see if your state levies an inheritance tax, check Bankrate's state tax pages. Where such a tax is collected, spouses and children of the deceased often are taxed at lower rates than other heirs.

You can specify in your will that you want your estate to pay any inheritance taxes that the government may slap on your heirs. It's a nice gesture, and may even keep your heirs from being forced to sell property you leave them in order to pay taxes.


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Tax Basics
Click on the links below to view the seven-part series of Tax Basics
Part One
Part Two
Part Three
Part Four
Part Five
Part Six: Death and taxes
Part Seven

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