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The estate tax is a tax imposed when transferring a deceased person’s estate to heirs and affects the estate’s beneficiaries. The tax rate is based on the size of the estate and where the estate is based. So how does the estate tax work in Idaho, and what are its tax rates?
This article will dive into the Idaho estate tax, how it works, and more!
Before diving into the Idaho estate tax and its workings, let’s get into the estate tax basics.
The estate tax is a tax on the transfer of assets between generations, i.e., from parents to their heirs. It is generally imposed on the estate’s total value and any gifts made before the person passes away above a pre-determined exempt amount that varies by state. Starting in 2023, individuals can transfer up to $12.92 million, during life or at death, without triggering the federal estate-tax bill, up from the 2022 exemption amount of $12.06 million.
However, each state has its own state-specific estate tax rules. Some states may not impose an estate tax, while others have a high estate tax rate. Moreover, the tax rate varies depending on the value of the gifted assets; typically, the more assets you pass on, the higher the tax rate you will lose to the estate tax.
These taxes are intended to reduce the wealth concentrated in a single estate by increasing the taxes on inherited wealth. Still, they can be minimized or completely avoided through estate planning.
Currently, the estate tax in Idaho in 2023 is 0% (zero). As a result, when passing assets on, you won’t owe Idaho estate taxes when passing assets on. Zero-estate taxes make Idaho attractive for wealthy individuals and those with large estates, as they can pass on their estates to their heirs without worrying about the government taking a significant portion of their wealth. However, if the estate’s value exceeds the federal tax exemption amount, then the estate is responsible for paying the remaining tax.
You are probably wondering how does the Federal Estate tax work for Idaho?
The Federal Estate Tax is a tax on assets transferred from a person who passed away to their heirs. It is paid by the dead person’s estate and is due nine months after death. Federal estate taxes range from 18% to 40%. This means that if you are giving away $1 million, over and above the federal estate tax exemption, you would owe $400,000 in federal estate taxes and only leave $600,000 behind for your beneficiaries. And that’s even before accounting for any state estate tax liability!
|Taxable Estate Above $12.92 Million||Base Taxes Paid||Marginal Rate||Rate Threshold|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
Each individual has a lifetime estate tax exemption — a gift tax exemption or the basic exclusion amount. This exemption is the value of assets you can give away, throughout your life and after your death, without being subject to the federal estate taxes described previously.
For 2023, this exemption is $12.92 million/per person. Because the exemption is per person, married couples can give away double that amount. In addition, as of 2023, you have an annual gift exclusion which allows you to give up to $17,000 per person/year that doesn’t count towards the gift tax exemption.
However, it’s essential to know the federal estate tax exemption level is scheduled to reduce by about 50% to $6.6 million when the Tax Cuts and Jobs Act sunsets in 2026, which is why it’s essential to get started with estate planning sooner rather than later.
So, how do all of these apply in the state of Idaho?
Let’s say your total taxable estate is $18 million. Critically you won’t owe any estate taxes in Idaho since there aren’t any Idaho estate taxes but you will owe Federal estate taxes as the federal gift exemption is $12.92 million. Just from the Federal estate tax you/your estate would owe ~$2,346,000!
Or in other words, your heirs would get $15,654,000 after the estate tax if you didn’t do any estate planning work. Fortunately, with some estate planning, you could avoid those Federal estate taxes entirely.
Idaho does not have a gift tax exemption limit since there’s no estate tax for this state. To clarify this, estate and gift taxes are usually viewed identically because they are subject to the same rate and share the lifetime exemption amount. However, the one key difference is that the estate tax applies to transfers of the decedent’s property at death, whereas the gift tax applies to transfers made during his or her life. As a result gifts of any size are allowed to be given from one individual to another without any Idaho gift taxes.
The inheritance tax in Idaho aligns with the estate tax. However, the essential factor to know is that Idaho has no inheritance tax before an inheritor obtains funds, real estate, or any other possessions from a legacy. In other words, no inheritance tax is required to be paid in this state.
While residents won’t face an Idaho estate tax, they may still face the Federal estate tax. Fortunately, there are solutions that can help minimize or altogether avoid the federal estate tax.
The lack of estate tax in Idaho is a positive for those in the state looking to pass on their wealth to their loved ones. Without a state estate tax, only Idaho residents planning to pass on more than $12.92 million over their lives will still need to deal with Federal estate taxes without proper estate planning.
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