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  1. #1
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    Default What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    My question involves estate proceedings in the state of: NY/NJ

    Person A will be getting an inheritance of just over $1m. The decedent is in NY and has never owned property in NJ. Person A lives in NJ.

    The estate is valued at over $5m. Person A and Person B will be getting the same amount of money left to them. Person C will be getting money too, but not as much. Institution X will be getting the bulk of the estate.

    1. What is Person A's tax liability (state and federal) if any, and in which state would Person A have to pay taxes?

    2. If taxes need to be paid, are they paid based on the total amount of the estate or on the inheritance amount only?

  2. #2
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    Default Re: Decendent's Estate in Ny, Beneficiary in New Jersey - Tax Liability

    Quote Quoting lisaj1354
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    What is Person A's tax liability (state and federal) if any, and in which state would Person A have to pay taxes?
    Neither the federal government nor the State of New York have an inheritance tax, and the value of the estate you mentioned is below the estate tax threshold for both New York and federal tax purposes. New Jersey does impose an inheritance tax, but it exempts several classes of persons based on their relationship to the deceased. What was Person A's relationship to the deceased?

    Quote Quoting lisaj1354
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    If taxes need to be paid, are they paid based on the total amount of the estate or on the inheritance amount only?
    As one might logically expect, inheritance tax is based on the amount inherited (while estate tax is based on the size of the estate).

  3. #3
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    Default Re: What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    Quote Quoting lisaj1354
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    1. What is Person A's tax liability (state and federal) if any, and in which state would Person A have to pay taxes?
    Person A has no tax liability for his/her inheritance if I assume that the only state in which the decedent had assets is NY.

    Neither NY or the federal government has an inheritance tax (which is a tax imposed on the value of property passed to a particular beneficiary). While inheritance taxes are generally considered taxes on the beneficiary, it is generally the estate's responsibility to file and pay the inheritance tax.

    Both the federal government and NY do have an estate tax (which is tax on the value of the whole estate) and while it is possible that the federal and/or state tax might apply to this estate (I'd need more facts to determine that, just saying that the estate is "over $5m" does not foreclose that possibility, as pg 1067 seemed to assume. But the tax is imposed on the estate, not on the beneficiary. Thus, the estate would pay the estate tax, along with any other debts of the estate, and then pay out what is left to the various beneficiaries. (Which means that Person A should not be counting how much he or she will get until the estate settles all that out.) The only way the beneficiary would end up paying the estate tax is if somehow the estate failed to do so.

    Finally, receiving an inheritance is not taxable income for either federal or NY state income tax.

  4. #4
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    Default Re: What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    Quote Quoting Taxing Matters
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    Person A has no tax liability for his/her inheritance if I assume that the only state in which the decedent had assets is NY.
    Does it matter that Person A lives in NJ, a state that does impose an inheritance tax?

  5. #5
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    Default Re: What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    Quote Quoting pg1067
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    Does it matter that Person A lives in NJ, a state that does impose an inheritance tax?
    No, it does not matter in what state the beneficiary lives. NJ, like most states with an inheritance tax, only imposes the tax in two situations: where the decedent was a resident of the state at the time of death or if the decedent had property located within the state at the time of death. If the latter, the tax is imposed only with respect to those assets located within the state. The OP indicated the decedent resided in NY, and so I stated the only other needed assumption for my answer, that the decedent's assets were all located in NY, too.

  6. #6
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    Default Re: What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    Quote Quoting Taxing Matters
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    No, it does not matter. . .
    Got it. Thanks.

  7. #7
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    Default Re: Decendent's Estate in Ny, Beneficiary in New Jersey - Tax Liability

    He is my uncle by marriage. I believe it is Class C or D then.

    Actually it does (from what I've read).

    If the decendent lived in or owned property in NJ, then there is a chance of the inheritance being taxable. However, he never has, so the estate remains untaxable under NJ law. I just wasn't sure if the decendent lived in NY but never in NJ, but the beneficiary lives in NJ, what the tax implications were in regards to the inheritance.

  8. #8
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    Default Re: Decendent's Estate in Ny, Beneficiary in New Jersey - Tax Liability

    Quote Quoting lisaj1354
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    I just wasn't sure if the decendent lived in NY but never in NJ, but the beneficiary lives in NJ, what the tax implications were in regards to the inheritance.
    Again, NJ inheritance tax will not apply unless your uncle either resided in NJ at the time he died or had assets in NJ at the time he died. That you reside in NJ doesn't make a difference to this at all. The NJ Division of Taxation provides an inheritance tax overview that explains this. Note in particular where it says: "Where the beneficiaries lived is not a factor."

  9. #9
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    Default Re: Decendent's Estate in Ny, Beneficiary in New Jersey - Tax Liability

    Thank you. That confirms my research.

  10. #10
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    Default Re: What Taxes Will a New Jersey Resident Owe on an Out-of-State Inheritance

    Quote Quoting Taxing Matters
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    Person A has no tax liability for his/her inheritance if I assume that the only state in which the decedent had assets is NY.

    Neither NY or the federal government has an inheritance tax (which is a tax imposed on the value of property passed to a particular beneficiary). While inheritance taxes are generally considered taxes on the beneficiary, it is generally the estate's responsibility to file and pay the inheritance tax.

    Both the federal government and NY do have an estate tax (which is tax on the value of the whole estate) and while it is possible that the federal and/or state tax might apply to this estate (I'd need more facts to determine that, just saying that the estate is "over $5m" does not foreclose that possibility, as pg 1067 seemed to assume. But the tax is imposed on the estate, not on the beneficiary. Thus, the estate would pay the estate tax, along with any other debts of the estate, and then pay out what is left to the various beneficiaries. (Which means that Person A should not be counting how much he or she will get until the estate settles all that out.) The only way the beneficiary would end up paying the estate tax is if somehow the estate failed to do so.

    Finally, receiving an inheritance is not taxable income for either federal or NY state income tax.
    Unless what the person inherited would have been taxable income to the decedent.

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