While the terms "estate tax" and "inheritance tax" are often used interchangeably when referring to death taxes, these two terms refer to completely different types of taxes. Currently a handful of states and the District of Columbia collect estate taxes at the state level, while only seven states collect inheritance taxes at the state level, and two states - Maryland and New Jersey - collect both. So what is the difference between an estate tax and an inheritance tax?
What is an Estate Tax?
An estate tax is a type of tax that is calculated based on the net value of property owned by a deceased person on the date of death.
All of the jurisdictions that currently collect a state estate tax give their residents and nonresidents who own real estate or tangible personal property located in the state an exemption from the state tax. These exemptions range from a low of $338,333 in Ohio and $5,000,000 in North Carolina.
Refer to the State Estate Tax and Exemption Chart for information about the following jurisdictions that collect state estate taxes and their current state estate tax exemption amounts - Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Tennessee, Vermont, and Washington.
What is an Inheritance Tax?
Contrast an estate tax to an inheritance tax, which is a type of state tax that is calculated based on who receives a deceased person's property and, in some states, how much they receive.
In all seven of the states that collect an inheritance tax transfers to surviving spouses are completely exempt from the tax, while in four of the seven states (Iowa, Kentucky, Maryland and New Jersey) transfers to surviving children and grandchildren are completely exempt from the tax.
Refer to the State Inheritance Tax Chart for a summary of the inheritance tax laws in the following seven states that collect inheritance taxes - Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
