If you live in Tennessee and have inherited property and assets, you must be curious to know about the tax laws in the state. Does Tennessee have an inheritance tax? Notably, Tennessee does not have an inheritance tax. However, there are certain conditions when you may be liable to pay tax on everything you inherited. Here’s what you need to know to understand how Tennessee’s inheritance tax laws work. Also, check out Beem for tax filing services for any filing status (single or joint) across all 50 states and all types of tax forms.
Do I Need To Pay Taxes On Inherited Property In Tennessee?
No, you do not need to pay any tax on the property you inherited because, after 31st December 2015, Tennessee no longer has an inheritance tax. A federal estate tax may apply if the value of your inherited estate exceeds a specific limit. As of 2023, this threshold is $12.92 million for individuals and $25.84 million for married couples.
What Steps Should I Take If I Inherit Property In Tennessee?
- Determine if the property is subject to probate: According to Tennessee inheritance law, your inherited property must undergo an eleven-month probate. To avoid this probate, you must use other ideas like placing your property in a living trust or exempting the deceased person’s assets from probate.
- Apply for an estate tax waiver: Tennessee has no inheritance or estate taxes, but your property and assets may still be subject to federal estate taxes. Apply for an estate tax waiver to determine if your property is exempt from federal taxes.
- Identify the rightful heirs: According to Tennessee inheritance laws, determine the rightful heirs. For example, if the deceased person had children, the estate would be divided evenly among all parties, with the spouse entitled to at least one-third of the overall property in the estate.
- Begin the probate process: If the property is subject to probate, start the probate process in the county where the deceased person resided or where the property is located. This process involves appointing an executor to manage the estate, gather and itemize assets and accounts, pay off outstanding debts, and distribute the remaining funds to the beneficiaries.
- Handle taxes and fees: Be aware of any taxes and fees associated with inheriting property in Tennessee, such as inheritance or property taxes. These fees may vary depending on the property’s value and other factors.
- Sell or transfer the property: If you inherit a property you wish to sell or transfer, you can do so independently or in conjunction with the other inheritors. In the case of multiple inheritors, you may need to agree on selling or buying the property and appoint a neutral party (non-beneficiary) as the head person for the sale.
- Pay off any outstanding debts: Use the estate’s assets and account funds to pay off all outstanding debts before distributing money to beneficiaries
- Distribute the remaining funds: Once all necessary steps have been completed, the court will authorize the distribution of the inheritance funds to the rightful heirs.
Can Inheritance Taxes Be Contested In Tennessee?
No, inheritance taxes cannot be contested in Tennessee because the state does not have an inheritance tax. However, contesting the amount owed to the federal government may be possible if the estate is subject to federal taxes. Contesting federal estate taxes can be complex, and consulting with an attorney or tax professional for guidance is recommended.
Are There Any Exceptions To Tennessee’s Inheritance Tax Laws?
Although there is no inheritance tax in Tennessee, there are certain exceptions where you may need to pay the tax. Let us see them in detail
- If the estate you inherited is located in a state that applies tax laws, then you may need to pay the tax as per the laws of that state. Usually, people with estate and assets in Kentucky have to pay inheritance tax. If you live near the border, your property may come under Kentucky laws and be eligible for tax payment.
- You must pay tax on your generated income if you earn anything from this inherited asset. This does not include the value of the inherited assets but only the income you have generated through those assets.
- You may have to pay taxes on your withdrawals if you inherit funds from a qualified tax-deferred retirement account. This is because the contributions to such accounts were made pre-tax, meaning they were never taxed as income.
Where Can I Get Assistance With Inheritance Tax-Related Questions In Tennessee?
A good and experienced estate lawyer is the best person to get guidance and advice related to your inherited property. They can help you with estate plans that maximize your benefits and apply tax waivers. They can also guide you on ways to use trusts to save your assets from taxes.
To sum it up, Tennessee does not have any inheritance tax, but it is always better if we understand the laws related to inheritance taxes and make informed decisions about estate planning and our assets. You should also consult the right people to understand how you get a tax waiver and if it is possible to avoid the probate period. Proper guidance and experienced advice is all it takes to handle the taxes and maximize your benefits. Also, explore how to calculate your taxes and prepare in advance for tax filing season with Beem.