Most taxpayers may be able to avoid federal estate taxes in 2012. According to the Federal tax laws, estates valued at less than $5 million can avoid estate taxes for the 2011 tax year in some cases. For decedents who died in 2011, the exemption amount is $5 million. For decedents who died in 2012, the exemption increases to $5.12 million.. Thus, if you die with less than a $5 million taxable estate, chances are, your estate will not owe federal estate income taxes. However, your estate may have to pay state estate taxes. About half of all U.S. states collect inheritance taxes from their residents. Some of these states provide a generous exemption which is equivalent to the federal income tax exclusions. Some states base their inheritance tax rate on kinship and degree of lineage. For example, in Nebraska, only spouses are exempt from state inheritance taxes, while in Iowa, children and surviving spouses are exempt.
Another area of concern may be trying to establish which state or states you owe inheritance taxes. If a decedent owned property in several states, determining his or her state of domicile may mean the difference between owing and not owing state inheritance taxes. Speak with your attorney or tax advisor today to understand your estate tax liabilities.
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