What is US inheritance law quoted by Sam Pitroda? US federal govt doesn’t have

Sam Pitroda’s US inheritance law reference has kickstarted a political storm in India. Congress has distanced from the comment whereas BJP has used it as a fodder to strengthen its political narrative against Rahul Gandhi and his political advisors

Also Read: Sam Pitroda’s comment sparks a row

What are inheritance taxes in US?

In United States, an inheritance tax is a state tax imposed on the money or property you inherit from a deceased person’s estate. Unlike the federal estate tax, which is paid by the estate, the beneficiary is responsible for paying the inheritance tax. Currently, the US federal government does not impose the tax and it’s only six states in the country that enforce an inheritance tax. Moreover, many beneficiaries are exempt from paying this tax, even if they reside in one of these states.

Inheritance tax rates vary widely, ranging from less than 1% to as high as 20% of the inherited property and cash value.

How do inheritance taxes function?

After the deceased has sorted out and allocated the assets to the beneficiaries, the inheritance tax kicks in. This tax amount is figured out separately for each beneficiary, and it’s their responsibility to cover it.

Let’s break it down with an example: Imagine a state imposes a 5% tax on inheritances exceeding $2 million. So, if one’s friend leaves with $5 million in their will, you’d only be taxed on the amount exceeding $2 million, which is $3 million. That comes out to $150,000 in taxes. You’d need to report this on an inheritance tax form as required by the state.

What US states impose inheritance taxes?

In a recent development, Iowa passed legislation aiming to gradually eliminate its inheritance tax. This legislation outlines a phase-out plan until the tax is entirely eliminated for deaths occurring on or after January 1, 2025.

Which states have an inheritance tax? The federal government does not enforce an inheritance tax. However, six states do impose one:

1. Iowa

2. Kentucky

3. Maryland

4. Nebraska

5. New Jersey

6. Pennsylvania

How is inheritance tax calculated?

The rules for inheritance tax differ from state to state, which means the rate of tax can vary too.

In many states, inheritance taxes hinge on how closely related the beneficiary is to the deceased. Generally, if you’re closer to the person who passed, you’re more likely to be exempt from paying inheritance taxes.

Now, when it comes down to crunching the numbers, inheritance tax is typically levied on inheritances above a certain threshold. The rate can either be a fixed percentage or it can increase in increments based on the value of the inheritance.