Inheritance Tax in Maryland for Heirs Who Are Not Children

Inherited property in Maryland may carry 10 percent tax.

Inherited property in Maryland may carry 10 percent tax.

For most of the United States, the only inheritance or estate tax that matters is the federal one. Given that it carries a $5.25 million exemption for 2013 and a $5.34 million exemption for 2014, many people won't have to worry about it at all. However, as of 2013, 22 states impose either estate or inheritance taxes. Maryland is one of them, imposing a 10 percent inheritance tax on some heirs.

Maryland Inheritance Tax

Maryland levies an inheritance tax of 10 percent on the transfer or property to some people. Transfers to spouses, children, parents and grandparents or grandchildren are tax free. Inheritances given to stepchildren or stepparents, as well as those given to siblings, are also tax free. An inheritance given to a corporation owned by tax-exempt family members is also not taxed. All other inheritances are subject to the tax.

Maryland Estate Taxes

The state of Maryland also taxes estates. Under its laws as they stand at the time of publication, the first $1 million of an estate's value is exempt. Any value over that is taxed at a rate that can be no higher than 16 percent. However, the state claims that most estates pay a much lower effective rate of around 9.9 percent.

Which Tax Gets Paid

Maryland levies both taxes at the same time. This means that an estate that is large enough to be subject to estate tax and that makes gifts to heirs that aren't children or close family members will end up paying inheritance tax too. When calculating the estate tax, though, the estate gets credit for the inheritance tax that it has paid and can subtract it from the bill.

Elements of a Maryland Estate

Maryland includes just about everything a person owns in his taxable estate. When calculating the value of the estate, it includes money, investment accounts, real estate and personal property. The state also taxes money from life insurance policies that the decedent owns and ownership shares in businesses. It only looks at net values, though, so it will subtract any loans against the property when calculating the value that is subject to inheritance or estate tax.

 

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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