Do Florida Beneficiaries Have to Pay Taxes on Inheritances?

Some states impose an inheritance tax, sometimes called a “death tax,” on people who receive assets from an estate. Florida, however, does not have an inheritance tax. If you inherit money or property in Florida, you do not owe state taxes on the inheritance.

Additionally, Florida does not have a state income tax, and under federal law, inherited property is not considered income. This means you do not have to report an inheritance on your tax return or pay income tax on it.

Federal Estate Taxes

While Florida does not have an estate tax, the federal government does impose one. The federal estate tax applies only if the deceased person’s total estate is worth more than $12.06 million (as of 2022). If an estate is subject to this tax, the tax is paid from the estate’s assets before distributions are made to beneficiaries. Beneficiaries do not pay this tax directly.

Because the federal exemption is so high—$24.12 million for married couples—most estates do not have to pay federal estate taxes.

When Florida Beneficiaries Might Owe Taxes

Even though inheritances are generally not taxable, there are certain situations where taxes may apply:

1. Inherited Retirement Accounts

If you inherit a traditional IRA, 401(k), or annuity, you may owe income taxes when you withdraw funds. The original owner would have paid taxes on these withdrawals, so the tax obligation transfers to you as the beneficiary.

Roth IRAs, however, are an exception. Withdrawals from inherited Roth IRAs are not taxed if the account was held for at least five years before the original owner passed away.

2. Income from an Inherited Asset

If an inherited asset generates income before it is transferred to you, that income may be taxable.

For example, if you inherit an apartment building and receive rental income during the probate process, you will owe income tax on the rent you receive before the property is officially transferred to you. However, the value of the property itself is not considered taxable income.

3. Selling Inherited Assets

If you inherit property, you do not pay taxes on its value at the time of inheritance. However, if you later sell the property and its value has increased, you may owe capital gains tax on the appreciation.

The good news is that inherited assets receive a “step-up” in basis, meaning that for tax purposes, the value is adjusted to what the asset was worth on the date of the previous owner’s death. This helps minimize capital gains tax when the asset is sold.

4. Inheriting from a Non-U.S. Citizen

If the deceased person was not a U.S. citizen, special tax rules may apply. Non-citizens who own property in Florida may be subject to U.S. estate taxes. Additionally, if a beneficiary is a non-citizen spouse, they may not qualify for the same tax exemptions as a U.S. citizen spouse. This can make estate planning more complicated.

Estate Tax vs. Probate

Many people confuse the federal estate tax with the probate process. They are not the same thing.

Probate is the legal process of settling a deceased person’s estate, paying off debts, and distributing assets to heirs. It applies when someone dies with assets in their individual name. However, probate itself does not impose taxes on be