Is there an Oklahoma estate tax?
Let’s take a look at the subject so you fully understand the taxes that can enter into the picture after your death. Let’s look at this subject to ensure you understand all the taxes that may be imposed after your death.
Income taxes
First let’s clear up some misconceptions about income taxes. You don’t have to report an inherited amount as taxable income at the state or federal levels. An exception would be distributions of untaxed portions of a trust’s earnings.
Capital Gains Tax
Let’s say that your grandfather leaves you 500 shares of stock that are worth $500 a share. He bought the shares for $50 each many years before he passed away. You inherit shares that your grandfather bought for $25,000, but they are now worth $250,000.
Does this mean you will have to pay capital gain taxes on the $225,000? The answer is no, because the assets are given a stepped up basis. For capital gains purposes, the meter is reset, and the basis becomes $250,000 rather than $25,000.
State-Level Estate Taxes
Moving on to the matter of an Oklahoma estate tax, there are a dozen states in the union that have state-level estate taxes. The District of Columbia also has its own estate taxes. Oklahoma is not one of the 12 states with estate taxes.
However, if you own valuable property in a state with an estate tax, it would apply to your estate. The good news is there are exemptions. The property would be subject to taxation if its value exceeds the exclusion in the state where it is located.
Oregon has the lowest state-level estate tax exclusion in the country at $1 million, so there are some significant cushions.
Federal Estate Tax
The federal estate tax is another looming threat, but it is only a factor for high-net-worth individuals. The federal estate tax is a 40 percent rate with a $13.61 million exemption. This is the result of a provision of the Tax Cuts and Jobs Act, which went into effect in 2018.
This provision will expire at the beginning of 2025. In 2017, the exclusion amount was $5.49m. When the tax cuts sunset on January 1, 2026, the exclusion will revert back that 2017 level indexed for inflation.
Federal Gift Tax
You can’t give large gifts to avoid the estate tax because there’s a gift tax. The two taxes were unified back in 1977. Therefore, the exclusion is one unified exclusion. It encompasses gifts that you give during your lifetime along with the estate that will be transferred after your death.
Window of Opportunity
When you digest all this information, you can see that people who are exposed to the estate tax have an opportunity. You could use the exclusion amount to make gifts between now, and 2026. The exclusion could be used to fund certain types of tax efficiency trusts that facilitate transfers at tax discounts.
Access Our Estate Planning Worksheet!
We have developed an estate planning worksheet that you can use to gain a more complete understanding of this process. It is being offered free of charge, and you can visit our worksheet access page to get your copy.
Schedule a Consultation Today!
If you’re ready to get down to business to put a plan in place, we can help. You can call our Oklahoma City estate planning office at 405-843-6100 to schedule a consultation.
Our Tulsa, Oklahoma location can be reached at 918-615-2700, and you can fill out our contact form if you would like to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors Read More! Larry Parman is an attorney at law who has been practicing for over 30 years. He has helped many families with their estate planning needs.
