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Is There an Inheritance Tax in Texas: Your Ultimate Guide

inheritance tax texas

If you’re inheriting something, then you probably have a lot of mixed emotions. You might have a lot of questions about how inheritance works. And you’re probably asking yourself what to do with this inheritance. Do you sell assets like a house to companies that buy homes as is? Or should you fix it up first? Is there an inheritance tax in Texas?

You need real advice that will tell you if there is a tax on your inheritance. And you want to know if you should sell the house to home buyers or not.

Read on to learn everything you need to know about inheritance taxes in Texas.

How Does Inheritance Work?

When someone dies, all of their money and property belong to their next of kin. The deceased may have written a will dictating how to do this. This also means that one or multiple parties can inherit from the same person.

In these cases, most people will leave their possessions to their children or spouse. If they don’t have any children or significant others, then they may choose to leave their assets to someone else who was close to them. They may also simply decide to donate their wealth to a charity.

If the person doesn’t leave behind a will, then things get a little more complicated. In these cases, the state’s default inheritance laws take effect.

In short, each state has laws that form a roadmap that helps determine who gets to inherit. In Texas, the order is spouse, children, parents, siblings, and finally grandparents.

To put it more clearly, if someone has a living spouse and they die without a will, then the spouse inherits everything. If the spouse is already also deceased, then the estate gets divided amongst their children. This chain continues until it reaches the nearest blood relation to the deceased.

This means that those who have a will made before they die have much more control over what happens to their assets. These people should hire a lawyer who can help them create such a document.

What Do You Do When You Inherit?

If you happen to inherit assets from a family member or loved ones, then you might be wondering what to do with them. The good news is that you have options depending on what kind of assets you’ve inherited.

For example, if you inherited money, then you have a wide variety of options open to you. You could choose to invest this money in stock or into your own properties. Or you might put it into a savings account and use it to pay off some bills.

If you inherit property such as a car or a house, then you really only get two options. The first is to sell this property and keep the money to use later. There are a lot of great companies that buy homes for cash right now.

The second is to make use of the property for yourself.

Some people might choose to rent out a house that they’ve inherited, for example. Or they might even choose to live in that house themselves for a while.

And what about those who inherit a business or a stock portfolio? These assets are also considered part of a person’s estate, and there are many options for people who inherit them.

Once again, your first option is to sell these assets. A business can often sell for a good amount of money but you may want to watch the market for a bit before selling stocks.

Another option you have is to hold onto these assets. A business can be an impressive source of income as long as you stay on top of it. And you might get more money for selling your stocks if you just wait a little longer.

What Taxes Should You Expect?

Unfortunately, even assets that you inherit will have taxes on them. There are two different kinds of taxes that you need to consider when you’re transferring assets into your name. These are going to be estate taxes and inheritance taxes.

Estate Tax

The first kind of tax that you might run into is an estate tax. This is a tax on a person’s right to transfer property ownership at the moment of their death.

That means that when an estate owner dies, the government will calculate the total value of that person’s assets. This includes property, business ownership, and any money in their bank accounts. This creates the value of the person’s entire estate.

Then the government is able to tax that estate a certain percentage. This usually only happens if the estate’s value is over a certain amount.

Once that you pay the tax, the rest of the estate can transfer to the heirs. Again, this is either based on a will left behind by the deceased or by the state of Texas’s inheritance laws.

This type of tax used to be normal in the United States both at the federal and state levels. As of 2019, only twelve states collect an inheritance tax. The state of Texas is not one of these states.

The federal government of the United States does have an estate tax. However, this is only levied against estates worth more than $11.7 million. So only very large estates would ever need to worry about this tax becoming an issue.

Inheritance Tax

Rather than taxing the estate as a whole, an inheritance tax comes out of the value of the assets each individual inherits.

For example, think about an estate worth five million dollars. The heirs each receive equal parts of this estate. Each one of these people is going to pay an inheritance tax.

As one of these heirs, you inherited one million dollars. In your area, there is a twenty percent inheritance tax on all inherited assets. This means that you need to pay twenty percent of that one million dollars to the government.

And your siblings, who also inherited parts of this estate, also owe the government twenty percent of the value of their inheritance.

In practice, this is actually much more complicated than this example allows. Many people won’t only inherit money but property as well. Some people may even inherit stock and businesses as well.

If the estate is being divided up amongst multiple heirs, then these heirs have decisions to make. Maybe one heir received the house while another received a business.

This means that both the house and the business are evaluated separately and then taxed. This is unlike an estate tax which is taken out before transferring to the heirs.

There is no federal inheritance tax in the United States. Many states have also eliminated inheritance taxes.

Is There an Inheritance Tax in Texas?

The big question is if there are estate taxes or inheritance taxes in the state of Texas. The short answer is no. There are not any estate or inheritance taxes in the state of Texas.

However, other stipulations might mean you’ll still get taxed on an inheritance.

First, there are the federal government’s tax laws. While Texas doesn’t have an estate tax, the federal government does. This means that any estates that are valued over 11.7 million dollars will be taxed before any assets are transferred to the heirs.

The other main thing that you should be careful of is the laws in other states. Imagine your family was based in Texas, but you’re inheriting a property in Maryland. Maryland has both an estate and an inheritance tax.

This means that any parts of the estate that are based in Maryland will be taxed two different ways. They will also be subjected to the federal estate tax if it qualifies. However, the assets based in Texas will not be taxed upon inheritance.

In other words, if the estate has assets across multiple states, you should do your research into those states’ inheritance laws. This will help prepare you for any taxes on these assets that you might not expect from the state of Texas.

The good news is that there aren’t many states that have an inheritance or an estate tax. There are even fewer that have both.

And if the estate is worth less than 11.7 million dollars, then the federal government won’t take out any taxes on it. So if the entire estate is based in Texas, then you might not pay any taxes at all.

Only Sell Inherited Houses to the Best Home Buying Companies

The good news is that there is no inheritance tax in Texas. You just have to watch out for taxes on properties in other states and the federal estate tax.

And then you still need to figure out what to do with the property you’ve inherited. If you inherited a house, then Stewardship Properties is the best company to buy your home. We’re one of a few companies that buy homes as-is and you’ll close in as little as fourteen days!

Contact us today to get a free cash offer on your home.

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