Question:
When my children need to pay a Massachusetts estate tax after my death, will that deduction come from their federal income taxes? I read somewhere that it will.
Response:
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 is currently $12.9 million (in 2023), 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 they receive from your estate.
Related Articles:
Does Your State Have Estate or Inheritance Taxes?
Are Proceeds of Recently-Gifted Life Insurance Policies Taxable in Massachusetts Estates?
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