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Tax On Inheritance

People call the tax on inheritance by many names--Death tax. Estate tax. Inheritance tax.

Of all the taxes, opinions on its morality and constitutionality seem to be especially voluminous.

Foes of the inheritance tax say it is immoral and wrong to put a financial burden on a family that recently experienced the death of a loved one.

But fans insist that death taxes are good ways to get revenue for the government because the taxes apply only to those with a lot of money. In an inheritance situation, money passes from one party to another, and supporters claim this money should be taxed, just like income or taxable gifts.

But what is inheritance tax? Why is there technically a tax on death? Is it different from estate tax? And how does it work?

Inheritance tax is a tax on the money and assets received by a beneficiary (also known as a transferee or heir) from the estate of the person who died. The estate is the grand total of everything the decedent owned and had interests in at the time of death.

Beneficiaries must pay taxes on the value of whatever they inherit, though they can claim a number of exemptions to reduce these taxes. In general, the inheritance tax rate depends primarily on the type of property being inherited and the relationship of the heir to the decedent.

The chief differences between estate tax and inheritance tax are where the tax burden falls. This means whether the tax must be paid by the estate itself or an individual heir, and then also to whom the tax is paid.

In recent years, however, many states have repealed or phased out their inheritance taxes.

But in general, in the United States, inheritance tax is levied by the states that still have them. The United States federal government levies the estate tax. But the Economic Growth and Tax Relief Reconciliation Act of 2001 has gradually been phasing out the estate tax, and is actually all set to repeal it completely in 2010.

In other words, in 2011 the tax will rise from the dead. But even today, the U.S. Congress continues to debate the final fate of the estate tax.

Discuss It!

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In recent years, however, many states have repealed or phased out their inheritance taxes.

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