Are State Estate Taxes Deductible on the Beneficiaries’ Income Tax Returns?
When my children will need to pay a Massachusetts estate tax after my death, will that deductible come from their federal income taxes? I read somewhere that it will.
No. State estate taxes are not deductible on income tax returns, just on federal estate tax returns. Unfortunately, this is irrelevant for almost everyone, since the federal estate tax threshold currently (in 2023) is $12.9 million, meaning only estates above this amount pay any federal estate tax.
The good news is that everything in your estate will receive a step-up in basis, eliminating any capital gains should your children choose to sell what the receive from your estate.