Do I Pay NJ Taxes on An Inheritance?

by | Apr 21, 2023 | Videos

So, do I pay NJ Taxes on an Inheritance?

In this week’s video (Episode #338) from the Mullooly Asset Show, Tom tackles the question “Do I pay NJ Taxes on an inheritance?” We get asked about NJ Inheritance taxes quite a bit, and we decided to make a video about it. As always, YOUR situation may be unique and this is not tax, financial or legal advice! But inheritance tax is a topic we get asked about often, and we are happy to walk through the details of your situation with you.

If you’ve ever wondered about NJ inheritance taxes, who pays, what amounts and what inheritance tax forms I need, check this video out.

Time Stamps for “DO I pay NJ Taxes on an Inheritance?”

0:33 – NJ Estate Tax vs. New Jersey Inheritance Tax
1:01 – Beneficiary classes
1:33 – NJ Inheritance tax on Class C Beneficiary
2:19 – Leave $2 million to a sibling? $320,000 tax
3:12 – Class D beneficiary example
4:07 – Who pays the New Jersey Inheritance tax?
4:35 – NJ tax form L-8

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Transcript for “Do I pay NJ taxes on an Inheritance?

So you’re planning on leaving that beach house on the Jersey Shore to your brother, along with an investment account.
Well, the State of New Jersey is going to be expecting inheritance tax of over $300 Grand – and we’re going to walk through that example right now.

Welcome to the Mullooly Asset Show – I’m your host Tom Mullooly and this is episode number 338.
Thanks for tuning in!

New Jersey doesn’t have an estate tax anymore – after 2017 – but what they still have – since 1892, is a New Jersey inheritance tax. And pretty much everybody who inherits something is going to fall into a couple of different buckets. And some folks are going to wind up paying inheritance taxes.

So New Jersey has broken people – depending on who you are — into different buckets. They have a class A, class C, class D and then Class E.

Class A is your children, your grandchildren, your great-grandchildren, your parents – even your grandparents – are all part of Class A. So if they inherit any part of your estate there is no inheritance tax that’s going to be due when they inherit these assets.

However if you’re in class C? Class C would be people like your siblings – your brother or sister. It could be a half sibling a half brother or sister. It could be a son-in-law, daughter-in-law – in these situations there are inheritance taxes that will be due and the rates – we’re going to post the brackets up so you can see them.

From $25 000 up to $1.1 million dollars, the inheritance tax rate is 11 percent.
It goes up to 16% once you reach $1.7 million in assets.

And like we said earlier if you own a house on the Jersey Shore and have a brokerage account you may be inheriting from your brother or sister something like $2 million, the inheritance tax rate on that is 16 percent.

On two million dollars, that’s three hundred and twenty thousand dollars the state of New Jersey is going to be getting.
You really need to think about how these assets are going to be passed out, after you pass away.

And this is not chump change state of New Jersey – a few years ago – brought in $350 million in revenue just from inheritance taxes. It’s big business for the state of New Jersey.

So we’ve talked about class A and Class C what about class D? Class D is pretty much everyone else. It’s a niece, a nephew, a cousin, a friend. It could be your fiancee! They also will have inheritance taxes.

Up to $700,000, the rate is 15%. If you’re inheriting over $700,000 it’s 16%
These numbers get steep very very quickly!

What’s a Class E? Class E would be a non-profit or a charity. They don’t have any kind of inheritance taxes.

Also, if you get a gift from someone through an estate for something less than five hundred dollars there there is no inheritance tax. And also if you are the beneficiary of life insurance from someone who lived in New Jersey, you’re not going to have inheritance tax with that.

The inheritance tax is normally paid by the personal representative of your estate. So the funds come out of the estate — it’s not something you’re going to have to pay federal income taxes on. Usually if you’re inheriting something like this you get the “net” result.

But it’s important to know these things are going to be happening once you pass away. Or if you’re involved in the inheritance process. If you’re a “class A” beneficiary and there’s a brokerage account involved, you have to
fill out a form called an L-8. It’s available on the state of New Jersey website. It’s actually pretty easy to fill out.

Everyone else is going to have to get inheritance tax waivers and that is not something you really want to get involved with.

Anyway there’s a lot of questions that come up we get asked all the time about inheritance taxes here at the office.

If you’ve got questions — reach out to us! We’d be happy to help you out.

That’s the message for episode 338, thanks again for tuning in.

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