Estate and Inheritance Taxes in Colorado

When planning your estate, or if you stand to inherit from one, you may have questions about how much of the estate’s value will be consumed by taxes. A lot of this depends on the value of the estate. Consulting a Colorado estate planning attorney with your specific situation is the best way to clear up any questions you may have.

Colorado Inheritance Tax

You may be pleased to note that you do not have to report Colorado Inheritance tax to the Internal Revenue Service (IRS). As a rule, it is not considered a federally taxable income. Though, estate assets that generate revenue before the estate’s distribution will require filing a tax return. Or the beneficiaries will be required to report the earnings on their personal income tax returns.

Inheritance taxes are paid by the people who are inheriting the assets in most states. Inheritance taxes apply to the size of the inheritance or the value of an individual gift rather than basing the tax on the entire estate’s value. Inheritance tax rates may differ depending on the beneficiary’s relationship with the person who passed away and, depending on the jurisdiction, the amount that was inherited.

Thankfully, Colorado has no inheritance tax. Only six other states tax inheritance. These are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If the decedent lived in one of these states and you are a Coloradan, you will not have to pay any inheritance taxes. But, if you are inheriting something from a state with an inheritance tax, you could be obligated to pay a tax, no matter where you live.

Simply put, the decedent’s state’s laws governing inheritance taxes and the state where the property is located will determine what taxes are owed. The state where the beneficiary resides will not be used to determine this.

Estate Taxes in Colorado

The state of Colorado imposes a tax on estates based on the value of their cumulative assets. Colorado estate tax is applied to the entire estate. The estate taxes are not paid by a beneficiary as they typically are with an inheritance tax. The estate pays estate taxes.

There are only twelve states tax estates at the state level. But, each state is subject to being taxed at the federal level. This means that estates of a certain value will not be able to avoid taxes altogether, even if the state does not require them.

Extremely high-value estates are typically the only estates subjected to estate taxes. To the relief of most beneficiaries, these are fairly rare. But, some specific instances can have a major effect on the amount of taxes the estate owes. It is helpful to have a professional estate planning attorney in Colorado review your estate or inheritance to help you retain as much of your property and assets as possible.

We Have Answers to Your Questions About Inheritance and Estate Taxes

If you have questions about estate planning or are planning for an inheritance you are receiving, we can answer them. At Brady, McFarland & Lord, LLC, our attorneys understand the intricacies of estate planning and how to avoid unnecessary levies and taxes best. Reach out today. We are ready to find real solutions to your estate planning goals.