Inheriting money or property can be a bittersweet experience. While it may provide financial security, it also comes with the emotional weight of losing a loved one. Amidst dealing with grief, many people find themselves wondering about the tax implications of their inheritance.
If you’re a North Carolina resident who has recently inherited or is expecting an inheritance, you might be asking: “How much can I inherit without paying taxes?”
The good news is that for most North Carolinians, inheritance taxes are not a significant concern. However, the topic can be complicated, with various factors to consider. Let’s break it down and explore what you need to know about inheritance and taxes in North Carolina.
North Carolina does not have a state inheritance tax. This means that regardless of the amount you inherit, you won’t owe any taxes to the state of North Carolina specifically for that inheritance.
This wasn’t always the case. North Carolina used to have an estate tax, often referred to as a “death tax,” but it was repealed in 2013. This repeal significantly simplified the inheritance process for many North Carolina residents.
While North Carolina doesn’t impose an inheritance tax, the government does. The good news is that for most people, even the federal estate tax won’t apply.
As of 2024, the federal estate tax exemption is quite high. An individual can leave up to $13.61 million to heirs without facing any federal estate tax. For married couples, this amount doubles to $27.22 million.
What does this mean for you? Unless the total value of the estate you’re inheriting from exceeds these thresholds, you won’t owe any federal estate taxes on your inheritance.
It’s important to distinguish between estate taxes and inheritance taxes:
While North Carolina has neither, and the federal government only imposes an estate tax (not an inheritance tax), it’s good to be aware of this distinction, especially if you’re dealing with assets or beneficiaries in multiple states.
While you likely won’t owe taxes directly on your inheritance, there are some tax-related considerations to keep in mind:
While the inheritance itself isn’t taxed, any income generated from inherited assets may be subject to income tax. For example:
If you inherit a traditional IRA or 401(k), you’ll generally need to pay income taxes on the distributions you take from these accounts. The specific rules can be complex and depend on your relationship to the deceased and the type of account.
One significant tax advantage for inheritors is the “step-up in basis” rule. This means that for tax purposes, the value of inherited assets is generally adjusted to their fair market value at the time of the owner’s death. This can significantly reduce potential capital gains taxes if you later sell the inherited assets.
While most North Carolinians won’t need to worry about estate taxes, if you’re dealing with a particularly large estate (approaching or exceeding the federal exemption threshold), there are some additional considerations:
It’s worth noting that tax laws can and do change. While the current federal estate tax exemption is quite high, there’s always the possibility of future adjustments. Staying informed about potential changes and regularly reviewing your estate plan is crucial.
Our attorneys stay up-to-date on the latest developments in estate tax law, both at the federal level and here in North Carolina. We’re committed to keeping our clients informed and helping them adjust their plans as needed to protect their assets and legacies.
While it’s reassuring to know that most inheritances in North Carolina won’t trigger additional taxes, the financial and legal aspects of an inheritance can still be complicated.
Every situation is different, and there may be nuances to your specific circumstances that require careful consideration.
Our personalized approach to estate planning and probate matters ensures that we consider all aspects of your situation. We can help you:
Inheriting money or assets in North Carolina is, from a tax perspective, relatively straightforward for most people. With no state inheritance tax and a high federal estate tax threshold, many North Carolinians can receive inheritances without worrying about immediate tax consequences.
However, managing an inheritance involves more than just understanding the tax implications. It’s about honoring your loved one’s legacy, making wise financial decisions, and planning for your own future.
Whether you’re navigating a recent inheritance, planning your own estate, or simply want to be prepared for the future, our team is here to help. We offer a personalized, compassionate approach to these sensitive matters, ensuring that you have the knowledge and support you need to make informed decisions.
Don’t let concerns about inheritance taxes add to the stress of losing a loved one. Contact us today to schedule a Discovery Call.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.